Which of the following would most likely cause real GDP to increase the most:
a. A rise in wealth and a rise in interest rates.
b. A rise in interest rates and a rise in input costs.
c. A rise in consumer confidence and a fall in government spending.
d. A fall in interest rates and a fall in input costs.
Answer: D
Choice "d" is correct. A decline in interest rates would cause the aggregate demand curve to shift right, which increases real GDP. Similarly, a decline in input costs would cause the aggregate supply curve to shift right, which also increases real GDP.
Choice "b" is incorrect. Both of these events would cause real GDP to decline.
Choice "a" is incorrect. A rise in interest rates would cause real GDP to decline, not increase.
Choice "c" is incorrect. A decline in government spending would cause real GDP to decline, not increase.