Higher savings usually requires higher interest rates because:
A) everyone prefers to save more instead of consuming.
B) saving requires sacrifice and people must be compensated for this sacrifice.
C) higher savings means we expect interest rates to decrease.
D) of the rule of 72.

Question

Quizplus · Accepted Answer

When people save money, they are sacrificing the ability to consume in the present. Therefore, they require compensation in the form of interest payments. Higher interest rates provide a greater incentive for people to save because they are being compensated more for their sacrifice.

Higher Savings Usually Requires Higher Interest Rates Because