If an increase in interest rates reduces investment spending by $25m:
A)real GDP will decrease by $25 million
B)GDP will decrease by $25 million
C)GDP will decrease by more than $25 million
D)GDP will decrease by less than $25 million x

Question

Quizplus · Accepted Answer

An increase in interest rates reducing investment spending by $25 million will lead to a multiplier effect, where the initial decrease in spending leads to further decreases in GDP, making the total decrease in GDP more than $25 million.

If an Increase in Interest Rates Reduces Investment Spending by $25m