answer (b)

N 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 increase in the expected rate of return on investment. c. A sizeable, sustained decline in stock prices. Respond to a: A decline in the real interest rate will cause real GDP to increase because a decline in real interest rate will increase interest sensitive consumer purchase and investment. Respond to b: Respond to c: A sizeable, sustained increase in stock prices will cause GDP to increase because by increasing consumption and investment, the aggregate expenditure schedule will shift upward, causing the GDP to increase