Real Interest Rates and Aggregate Demand
What is the most likely effect of an increase in real interest rates on the components of aggregate demand?
A
Higher real interest rates boost consumer optimism and thereby increase consumption and aggregate demand.
B
Increased real interest rates have no significant impact on investment spending since they only affect long-term government bonds.
C
Higher real interest rates increase borrowing costs, leading to reduced investment spending and a leftward shift in aggregate demand.
D
Rising real interest rates directly reduce savings, causing an increase in net exports and a rightward shift in aggregate demand.
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