To the extent that households are target savers who save to reach a specific goal, an increase in the interest rate ________ household saving and a decrease in the interest rate ________ household saving.
A)increases; decreases
B)decreases; increases
C)does not affect; increases
D)increases; does not affect

Question

Quizplus · Accepted Answer

If savers have a target in mind, higher interest rates decrease the saving rate as a smaller amount of savings can still reach a certain goal when the rate of interest or growth is higher. Similarly, a larger amount of savings will be needed to reach a certain goal when the rate of interest or growth is lower.

To the Extent That Households Are Target Savers Who Save