A higher interest rate will:
A)shift the consumption function upward.
B)shift the consumption function downward.
C)make the consumption function steeper.
D)make the consumption function flatter.
E)cause an upward movement along the consumption function.

Question

Quizplus · Accepted Answer

A higher interest rate increases the cost of borrowing and therefore decreases disposable income, causing a decrease in consumer spending. This shift in consumer spending will shift the consumption function downward.

A Higher Interest Rate Will