In some sophisticated macroeconomic models, if monetary policy is used to combat recession, the real interest rate _____, whereas the real interest rate ______if fiscal policy is used.
A)increases; decreases
B)decreases; increases
C)remains unchanged; increases
D)decreases; remains unchanged

Question

Quizplus · Accepted Answer

In these models, if monetary policy is used to combat recession, the central bank lowers interest rates to stimulate borrowing and spending, leading to a decrease in the real interest rate. However, if fiscal policy is used, the government increases spending, which can lead to an increase in demand for loanable funds and an increase in the real interest rate.

In Some Sophisticated Macroeconomic Models, If Monetary Policy Is Used