Use the figure below to answer the following question(s).
Figure 10-7

-If the economy were operating at point a in Figure 10-8,the real rate of interest would tend to
A)decrease and move the economy toward point c.
B)decrease and move the economy toward point b.
C)increase and move the economy toward point c.
D)increase and move the economy toward point b.

Question

Use the figure below to answer the following question(s).
Figure 10-7
 
-If the economy were operating at point a in Figure 10-8,the real rate of interest would tend to
A)decrease and move the economy toward point c. 
B)decrease and move the economy toward point b. 
C)increase and move the economy toward point c. 
D)increase and move the economy toward point b.

Quizplus · Accepted Answer

At point a, the real interest rate is below the equilibrium level, indicating excess demand for goods and services. This will lead to an increase in aggregate demand, causing an increase in real GDP and employment. As output increases, the demand for credit to finance investment spending will also increase, leading to a decrease in the real interest rate. This process will continue until the economy reaches the equilibrium level at point b. Therefore, the real rate of interest would tend to decrease and move the economy toward point b.

Use the Figure Below to Answer the Following Question(s)