Which of the following statements is most correct?
A) When the real interest rate increases the reward for saving decreases.
B) When the real interest rate decreases current consumption becomes less expensive and the reward for saving decreases.
C) When the real interest rate decreases the cost of current consumption increases.
D) When the real interest rate increases the level of saving always decreases.

Question

Quizplus · Accepted Answer

B is correct because a decrease in the real interest rate makes current consumption less expensive relative to future consumption, thus reducing the incentive to save. This is because the return on savings is lower, making spending now more attractive than saving for later.

Which of the Following Statements Is Most Correct