If the real interest rate decreases,
A) the slope of the planned expenditure line will increase.
B) the intercept of the planned expenditure line will increase.
C) the slope of the planned expenditure line will decrease.
D) the intercept of the planned expenditure line will decrease.

Question

Quizplus · Accepted Answer

When the real interest rate decreases, it becomes cheaper for individuals and businesses to borrow money. This typically leads to an increase in investment spending and possibly consumption spending as well, which are components of planned expenditure. As a result, the intercept of the planned expenditure line, which represents autonomous spending (spending that does not depend on the level of income), will increase.

If the Real Interest Rate Decreases