If real interest rates increase, the expenditure line
A)does not change.
B)becomes steeper.
C)becomes flatter.
D)shifts down in a parallel way.
E)shifts up in a parallel way.

Question

Quizplus · Accepted Answer

When real interest rates increase, the cost of borrowing increases, leading to a decrease in investment spending. This is represented by a downward shift in the expenditure line, as overall spending at each level of income is reduced.

If Real Interest Rates Increase, the Expenditure Line