Which of the following leads to an increase in real GDP?
A)A decrease in government spending.
B)An increase in the inflation rate in other countries, relative to the inflation in Australia.
C)An increase in interest rates.
D)Households have increasingly pessimistic expectations about future income.

Question

Quizplus · Accepted Answer

An increase in the inflation rate in other countries relative to Australia's inflation rate would lead to an increase in exports and hence an increase in real GDP.

Note: The other choices would lead to a decrease in real GDP - a decrease in government spending (A) would decrease aggregate demand, an increase in interest rates (C) would decrease investment and consumption spending, and households having increasingly pessimistic expectations about future income (D) would decrease consumption spending.

Which of the Following Leads to an Increase in Real