An increase in the cash rate ultimately results in ________ in the long-term real interest rate which leads to a ________ in investment.

Question

Quizplus · Accepted Answer

An increase in the cash rate is a contractionary monetary policy aimed at reducing inflation. This increase leads to higher borrowing costs, which ultimately raises the long-term real interest rate. As a result, businesses and investors are discouraged from borrowing and investing, leading to a decrease in investment. Therefore, an increase in the cash rate ultimately results in an increase in the long-term real interest rate, which leads to a decrease in investment.

An Increase in the Cash Rate Ultimately Results in ________