The equilibrium interest rate will ________ if government spending increases and foreign income decreases.

Question

Quizplus · Accepted Answer

The equilibrium interest rate could either increase or decrease depending on the relative strength of the effects. Increased government spending can lead to higher interest rates due to increased demand for funds, while decreased foreign income can lead to lower interest rates due to reduced demand for exports and thus lower economic activity.

The Equilibrium Interest Rate Will ________ If Government Spending Increases