What should be the impact on aggregate expenditures from an increase in the real interest rate?
A) It should increase
B) It should decrease
C) It should remain constant
D) The impact is indeterminate

Question

Quizplus · Accepted Answer

An increase in the real interest rate will increase the cost of borrowing, which will discourage investment and consumption spending, leading to a decrease in aggregate expenditures. Therefore, the correct choice is B.

What Should Be the Impact on Aggregate Expenditures from an Increase