A higher real interest rate today makes current consumption
A)more expensive relative to future consumption because the return on savings is lowered.
B)more expensive relative to future consumption because the return on savings is increased.
C)less expensive relative to future consumption because the return on savings is increased.
D)less expensive relative to future consumption because the return on savings is lowered.
E)just as expensive as future consumption because the return on saving is uncertain.

Question

Quizplus · Accepted Answer

A higher real interest rate increases the return on savings, making current consumption more expensive relative to future consumption, as individuals are incentivized to save more and consume less today to benefit from the higher returns on their savings in the future.

A Higher Real Interest Rate Today Makes Current Consumption