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Other things equal, what effect will each of the following changes independently have on the equilibrium...

Other things equal, what effect will each of the following changes independently have on the equilibrium level of real GDP in the private closed economy?

a. A decline in the real interest rate.

b. An overall decrease in the expected rate of return on investment.

c. A sizable, sustained increase in stock prices.

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Answer #1

ANSWER:

A) GDP will increase as consumers will invest and purchase more due to less interest earned.

B) GDP will decrease as there will be less return earned from the investment made by people and they will try to put the money in the banks for better returns.

C) GDP will increase as due to increased in stock prices , people will start spending more as they will feel that they are more wealthy compared to earlier and this will lead towards more consumption and subsequently more investment.

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