Question

Other things equal, a decrease in the real interest rate will

Multiple Choice
expand investment and shift the AD curve to the left.
expand investment and shift the AD curve to the right.
reduce investment and shift the AD curve to the left.
reduce investment and shift the AD curve to the right.

Answer 1

A decrease in the real interest rate reduces the cost of borrowing, making it cheaper for businesses to invest in new projects and for consumers to finance purchases. As a result, investment typically expands. This increase in investment leads to a rise in aggregate demand.

Thus, the correct answer is:

**expand investment and shift the AD curve to the right.**