A short-run increase in national income could be caused by a decrease in which of the following?

• A. Consumer confidence
• B. Exports
• C. Interest rates
• D. Government spending

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the relationship between national income and aggregate demand in the short run. National income increases when aggregate demand increases, which can be influenced by components such as consumption, investment, government spending, and net exports.
2. Step 2: Analyze how a decrease in consumer confidence affects national income. A decrease in consumer confidence typically reduces consumption, which lowers aggregate demand and thus national income, so it would not cause an increase.
3. Step 3: Consider the effect of a decrease in exports. Lower exports reduce net exports, which decreases aggregate demand and national income, so this also would not cause an increase.
4. Step 4: Examine the impact of a decrease in interest rates. Lower interest rates reduce the cost of borrowing, encouraging investment and consumption, which increases aggregate demand and thus national income in the short run.
5. Step 5: Evaluate the effect of a decrease in government spending. Reduced government spending lowers aggregate demand, which decreases national income, so it would not cause an increase.