Other things equal,when the real interest rate rises,C,I,and NX ________ and real GDP will ________ relative to potential GDP.
A) decrease; decrease
B) decrease; increase
C) increase; increase
D) increase; decrease

Question

Quizplus · Accepted Answer

When the real interest rate rises, consumption (C), investment (I), and net exports (NX) decrease as it becomes more expensive to borrow money for consumption and investment, and the appreciation of the currency decreases net exports. As a result, aggregate demand decreases, and real GDP will decrease relative to potential GDP.

Other Things Equal,when the Real Interest Rate Rises,C,I,and NX ________