In the Keynesian-cross model,as the interest rate increases,the equilibrium level of income ______,whereas in the loanable funds model,as the level of income increases,the equilibrium level of the interest rate ______.
A) increases; increases
B) increases; decreases
C) decreases; decreases
D) decreases; increases

Question

Quizplus · Accepted Answer

In the Keynesian-cross model, as the interest rate increases, the equilibrium level of income decreases because higher interest rates discourage borrowing and spending. In the loanable funds model, as the level of income increases, the equilibrium level of the interest rate increases because higher incomes lead to increased demand for loanable funds.

In the Keynesian-Cross Model,as the Interest Rate Increases,the Equilibrium Level