Fiscal Policy Affects the Real Interest Rate Through Its Impact

question 105

Multiple Choice

Fiscal policy affects the real interest rate through its impact on:

• A) money supply and the price level.
• B) real GDP and money demand.
• C) money supply and money demand.
• D) real GDP and money supply.

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Definitions:

RRSP fund

A Registered Retirement Savings Plan (RRSP) fund is a retirement savings plan sponsored by the Canadian government, allowing citizens to save for retirement on a tax-sheltered basis.

Nominal rate

An interest rate or return quoted on an investment or loan, not adjusted for inflation or other factors.

Effective rate

The total compounded interest rate, expressed annually, that represents the actual financial cost of a loan or investment.

Compounded quarterly

Interest is recalculated every three months based on both the initial principal and previously earned interest, leading to exponential growth of an investment or debt.