In the dynamic model, the demand for goods and services will ____ as the natural rate of output increases and _____ as the real interest rate increases.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase

Question

Quizplus · Accepted Answer

In the dynamic model, as the natural rate of output increases, it implies an increase in economic productivity and potential, leading to higher demand for goods and services. Conversely, as the real interest rate increases, borrowing costs become higher, which typically reduces consumption and investment, thereby decreasing the demand for goods and services.

In the Dynamic Model, the Demand for Goods and Services