A Higher Real Interest Rate Reduces the Demand for Goods

question 2

Multiple Choice

A higher real interest rate reduces the demand for goods and services by:

• A) shifting the dynamic aggregate supply curve.
• B) decreasing the natural level of output.
• C) increasing inflation expectations.
• D) reducing investment and consumption spending.

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Definitions:

Variable Costs

Costs that vary in direct proportion to changes in the level of production or sales volume.

Variable Costs

Costs that change in proportion to the level of production or activity, such as materials and labor.

Sales

The transactions involving the exchange of goods or services for money.

Contribution Margin Ratio

A financial metric that measures how much of a company's revenue is left over after variable costs to cover fixed costs and generate profit.