Which of the following leads to a decrease in real GDP?
A)an increase in government spending
B)an increase in the inflation rate in other countries,relative to the inflation in the United States
C)an increase in interest rates
D)Households have increasingly optimistic expectations about future income.

Question

Quizplus · Accepted Answer

An increase in interest rates leads to a decrease in borrowing and investment, which decreases aggregate demand and can lead to a decrease in real GDP. A decrease in government spending would also lead to a decrease in real GDP, but this is not one of the options presented. An increase in the inflation rate in other countries relative to the United States and households having optimistic expectations about future income do not necessarily have a direct impact on real GDP.

Which of the Following Leads to a Decrease in Real