A fall in the real interest rate causes:
A)a right shift of the IS curve.
B)movement up and to the left along the same IS curve.
C)movement down and to the right along the same IS curve.
D)a left shift of the IS curve.

Question

Quizplus · Accepted Answer

A fall in the real interest rate reduces the cost of borrowing, which encourages investment and consumption, leading to an increase in aggregate demand. This is represented by a movement down and to the right along the same IS curve, as lower interest rates are associated with higher levels of income and output.

A Fall in the Real Interest Rate Causes