Which of the following happens if the real interest rate in an economy rises?
A) Consumption increases.
B) Investment falls.
C) Labor demand increases.
D) Labor supply falls.

Question

Quizplus · Accepted Answer

When the real interest rate in an economy rises, it becomes more expensive for firms to borrow money to invest in new projects, leading to a fall in investment. Higher interest rates also increase the cost of borrowing for consumers, causing a decrease in consumption. However, labor demand does not necessarily increase, and labor supply is not directly affected by changes in the interest rate.

Which of the Following Happens If the Real Interest Rate