What Would Be the Effect of a Decrease in the Real

question 18

Multiple Choice

What would be the effect of a decrease in the real interest rate and an increase in the expected inflation rate?

• A) Both changes would decrease aggregate demand.
• B) Both changes would increase aggregate demand.
• C) Both changes would increase short-run aggregate supply.
• D) Both changes would increase long-run aggregate supply.

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Definitions:

Sunk Cost

Sunk Cost represents money that has already been spent and cannot be recovered, often considered irrelevant to future economic decisions.

Lure of the New

A phenomenon describing the attraction or preference for novel products, technologies, or ideas over those that are more familiar or traditional.

Appeals to Tradition Fallacy

A logical fallacy that argues something is correct or better simply because it is traditional or has always been done.

Gambler's Fallacy

The erroneous belief that the outcome of a random event is influenced by previous outcomes, such as believing that a string of losses increases the likelihood of an imminent win.