When the real interest rate increases, the demand for current consumption
A) shifts up.
B) remains constant.
C) moves along the demand curve.
D) shifts down.
E) increases for each level of current income.

Question

Quizplus · Accepted Answer

When the real interest rate increases, the cost of borrowing increases as well which causes a decrease in demand for current consumption as people prefer to save more and consume later. Therefore, the demand curve shifts down.

When the Real Interest Rate Increases, the Demand for Current