An increase in the real interest rate leads to a(n)________.
A) increase in real output
B) decrease in the demand for labor
C) increase in the demand for capital
D) increase in the demand for money

Question

Quizplus · Accepted Answer

When the real interest rate increases, the cost of borrowing increases. As a result, firms reduce their investment in capital which reduces the demand for labor as well.

An Increase in the Real Interest Rate Leads to A(n)________