An increase in the real interest rate causes
A) the IS curve to shift to the right.
B) the IS curve to shift to the left.
C) a movement up the IS curve.
D) a movement down the IS curve.

Question

Quizplus · Accepted Answer

An increase in the real interest rate does not shift the IS curve but causes a movement up along the IS curve because it represents a decrease in investment spending at any given level of income, not a shift in the overall relationship between income and the interest rate.

An Increase in the Real Interest Rate Causes