A temporary decrease in government purchases causes the real interest rate to ________ and output to ________ in the short run,before prices adjust to restore equilibrium.
A)rise; rise
B)rise; fall
C)fall; rise
D)fall; fall

Question

Quizplus · Accepted Answer

A temporary decrease in government purchases shifts the aggregate demand curve to the left, which leads to a decrease in output. The decrease in output reduces the demand for money, which leads to a decrease in the real interest rate.

A Temporary Decrease in Government Purchases Causes the Real Interest