The change in the interest rate brought on by a change in Real GDP is referred to as the __________ effect.

Question

Quizplus · Accepted Answer

The change in interest rate caused by a change in Real GDP is referred to as the income effect. This is because a change in Real GDP affects the level of income, which in turn affects the demand for loanable funds and the supply of savings, leading to changes in interest rates. Option A is not correct because the liquidity effect refers to changes in interest rates caused by changes in the money supply. Option B (expectations effect) and option D (nominal effect) are also not appropriate as they do not refer to changes in interest rates caused by changes in Real GDP.

The Change in the Interest Rate Brought on by a Change