Answer: Faster growth in potential GDP translates into higher real interest rates

## Explanation **Option A is correct:** Faster potential GDP growth typically leads to higher real interest rates. **Economic rationale:** - Higher potential growth increases the marginal product of capital - This raises the equilibrium real interest rate (the natural rate of interest) - Central banks may need to set higher policy rates to prevent overheating **Why other options are incorrect:** - **Option B:** Actual GDP growth above potential puts **upward** pressure on inflation (not downward) due to demand exceeding supply capacity - **Option C:** Lower potential GDP growth generally **worsens** credit quality as it indicates weaker economic fundamentals and repayment capacity **Key concept:** Potential GDP represents the economy's sustainable growth capacity without generating inflation.

Author: LeetQuiz Editorial Team