Which of the following leads to a decrease real GDP?
A) an increase in government spending
B) an increase in the inflation rate in other countries, relative to the inflation in the United States
C) an increase in interest rates
D) households have increasingly optimistic expectations about future income

Question

Quizplus · Accepted Answer

An increase in interest rates leads to a decrease in investment and consumption spending, which in turn leads to a decrease in real GDP. A) is incorrect because an increase in government spending typically leads to an increase in real GDP. B) is incorrect because inflation rate in other countries does not directly impact real GDP in the United States. D) is incorrect because optimistic expectations about future income would likely lead to an increase in consumption spending and therefore an increase in real GDP.

Which of the Following Leads to a Decrease Real GDP