Which of the Following Events Could Explain an Increase in Interest

question 167

Multiple Choice

Which of the following events could explain an increase in interest rates together with an increase in investment?

• A)The government runs a larger deficit.
• B)The government institutes an investment tax credit.
• C)The government replaces the income tax with a consumption tax.
• D)None of the above is correct.

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Definitions:

Real GDP

Gross Domestic Product adjusted for inflation, measuring the value of all final goods and services produced within a country's borders in a given year, reflecting the real quantity of production.

Expansionary Monetary Policy

A policy by the central bank to increase money supply and encourage economic growth, typically through lowering interest rates.

Fed

Short for Federal Reserve, the central banking system of the United States, responsible for monetary policy.

Market Interest Rate

The prevailing rate at which borrowers can obtain loans and depositors can earn on their investments in the financial market, influenced by supply and demand forces.