Everything else being equal,a higher interest rate
A) increases consumption spending as people face increasing debt
B) reduces consumption spending as people have a greater incentive to save
C) does not change consumption spending because consumption is only affected by income
D) does not change total consumption spending,but does change who does the spending
E) reduces both consumption spending and saving as people face increased debt.

Question

Quizplus · Accepted Answer

A higher interest rate incentivizes people to save rather than spend, as the return on savings is greater. This reduces consumption spending.

Everything Else Being Equal,a Higher Interest Rate