If consumers decide to save a larger percentage of their incomes,it will be
A) harmful in the long run because the price level will rise.
B) beneficial in the short run because saving will rise.
C) beneficial in the long run because interest rates will fall.
D) harmful in the long run because aggregate supply will fall.
E) harmful in the long run because unemployment will increase.

Question

Quizplus · Accepted Answer

If consumers decide to save a larger percentage of their incomes, it will lead to a decrease in aggregate demand in the short run, which can be harmful by slowing down economic growth and reducing employment opportunities. However, in the long run, the increase in the amount of savings will lead to lower interest rates as banks have more deposits to lend out. This can lead to increased investment activity in the economy, which can ultimately promote growth and prosperity. Therefore, option C is the best answer.

If Consumers Decide to Save a Larger Percentage of Their