If the interest rate increases, then the:
A) economy will move to a new point along the existing consumption function.
B) consumption function will shift up.
C) consumption function will shift down.
D) investment demand curve will shift up.

Question

Quizplus · Accepted Answer

When the interest rate increases, the cost of borrowing increases, which typically reduces consumption and investment. This leads to a downward shift in the consumption function because consumers will generally spend less as borrowing becomes more expensive.

If the Interest Rate Increases, Then The