When drawn against the real interest rate,output supply increases if
A) current government expenses increase.
B) future government expenses increase.
C) current total factor productivity increases.
D) the money supply increases.

Question

Quizplus · Accepted Answer

When drawn against the real interest rate, output supply increases when total factor productivity increases. This is because total factor productivity represents the efficiency with which resources are used in the economy, and as efficiency increases, the economy can produce more output without having to increase its inputs, including labor and capital. Increasing current or future government expenses or the money supply may have an impact on output supply, but the effect on the real interest rate would depend on how these policies are implemented and financed, and therefore cannot be generalized.

When Drawn Against the Real Interest Rate,output Supply Increases If