Consumption can be sensitive to changes in the real interest rate because:
A) higher interest rates can increase the cost of durable goods like automobiles.
B) higher interest rates will result in less saving.
C) lower real interest rates will decrease spending on durable goods and increase spending on non-durable goods.
D) lower interest rates increase savings.

Question

Quizplus · Accepted Answer

Higher interest rates can increase the cost of borrowing, which will raise the cost of financing purchases of durable goods such as automobiles. As a result, consumers are likely to decrease their consumption of these types of goods.

Consumption Can Be Sensitive to Changes in the Real Interest