An increase in the real interest rate increases the quantity of saving because the higher real interest rate

Question

Quizplus · Accepted Answer

A higher real interest rate provides an incentive for individuals to save more because it increases the opportunity cost of using their income for current consumption. This means that the higher return on savings makes current consumption relatively more expensive, leading individuals to save more instead of spending. Therefore, an increase in the real interest rate leads to an increase in the quantity of saving. The other choices are not relevant to the relationship between real interest rate and saving.

An Increase in the Real Interest Rate Increases the Quantity