A fall in the real interest rate, all other things held constant, will cause a country's ________ to ________.
A) current consumption: decrease
B) welfare level; improve
C) current consumption: increase
D) terms of trade; worsen
E) terms of trade; improve

Question

Quizplus · Accepted Answer

A fall in the real interest rate will make borrowing cheaper, and hence increase current consumption. This is because individuals will be more likely to take on debt, and use the borrowed money to increase their current consumption. The other answer choices are not directly affected by changes in the real interest rate.

A Fall in the Real Interest Rate, All Other Things