Which of the following leads to a decrease in real GDP?
A)An increase 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 optimistic expectations about future income.

Question

Quizplus · Accepted Answer

An increase in interest rates leads to a decrease in consumption and investment spending, which decreases aggregate demand and ultimately decreases real GDP. Options A and D lead to an increase in aggregate demand and may increase real GDP. Option B may have some negative impact on net exports, but it is not significant enough to decrease real GDP.

Which of the Following Leads to a Decrease in Real