A change in the real interest rate creates a movement along the consumption function.

Name: A change in the real interest rate creates a movement along the consumption function.
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Question

Quizplus · Accepted Answer

A change in the real interest rate affects the level of consumption but does not cause a movement along the consumption function; instead, it shifts the consumption function. This is because the consumption function is based on the relationship between consumption and disposable income, not interest rates.

A Change in the Real Interest Rate Creates a Movement