Final answer:
A decrease in the real interest rate typically leads to expanded investment and a shift of the AD curve to the right, which may cause inflation if the economy surpasses its potential GDP.
Step-by-step explanation:
When considering the impact on aggregate demand (AD) from changes in the real interest rate, a decrease in the real interest rate typically encourages businesses to expand their investments. Since borrowing costs are lower, companies find it more affordable to finance new projects, equipment, and expansion efforts. This behavior contributes to an expansion in economic activity, increasing aggregate demand.
Given the scenario where all other factors are equal, a decrease in the real interest rate would expand investment and shift the AD curve to the right. This can lead to increased inflation if the shift pushes the economy beyond its potential Gross Domestic Product (GDP). Therefore, the correct answer is:
B) expand investment and shift the AD curve to the right.