During an economic expansion due to an increase in technology, A, consumption will:
A)tend to fall due to the income effect.
B)be unchanged.
C)tend to fall due to the intertemporal substitution effect of the interest rate rising.
D)tend to fluctuate.

Question

Quizplus · Accepted Answer

During an economic expansion caused by an increase in technology, interest rates may rise as businesses borrow more to invest in the new technology. This can lead to the intertemporal substitution effect, where consumers may choose to save rather than spend due to higher interest rates, potentially causing consumption to fall.

During an Economic Expansion Due to an Increase in Technology