If the interest rate increases due to an increase in government purchases,the rise in real GDP will be greater than what would have occurred if the interest rate had remained stable.

Question

Quizplus · Accepted Answer

An increase in interest rates typically dampens investment and consumption, which can offset the positive impact of increased government purchases on real GDP, leading to a smaller rise in GDP than if interest rates had remained stable.

If the Interest Rate Increases Due to an Increase in Government