In the figure given below panel A represents money market equilibrium, panel B represents investment demand, and panel C represents equilibrium real GDP.
Figure 13.3

-Refer to Figure 13.3. Other things equal, if the interest rate is greater than 6 percent, then:
A) investment spending will be greater than $500 billion.
B) the equilibrium level of real GDP will increase.
C) the equilibrium level of real GDP will decrease.
D) the money demand curve will shift downward to the left.
E) the equilibrium price level will increase.

Question

In the figure given below panel A represents money market equilibrium, panel B represents investment demand, and panel C represents equilibrium real GDP.
Figure 13.3
 
-Refer to Figure 13.3. Other things equal, if the interest rate is greater than 6 percent, then:
A) investment spending will be greater than $500 billion. 
B) the equilibrium level of real GDP will increase. 
C) the equilibrium level of real GDP will decrease. 
D) the money demand curve will shift downward to the left. 
E) the equilibrium price level will increase.

Quizplus · Accepted Answer

Panel B shows that at an interest rate greater than 6%, investment demand decreases. This causes a leftward shift in the aggregate demand curve in panel C, leading to a lower equilibrium level of real GDP. Therefore, choice C is correct. A, B, D, and E are not correct because they do not correspond to the given information.

In the Figure Given Below Panel a Represents Money Market