Other things equal,when the real interest rate falls,C,I,and NX ________ and the output gap will ________.
A) decrease; decrease
B) decrease; increase
C) increase; increase
D) increase; decrease

Question

Quizplus · Accepted Answer

When the real interest rate falls, consumption (C), investment (I), and net exports (NX) typically increase because borrowing costs are lower, making it cheaper to finance spending and investment. This increase in aggregate demand can lead to an increase in the output gap, as actual output moves closer to potential output.

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