If consumers face higher interest rates when their savings is positive than when their savings is negative

Question

Quizplus · Accepted Answer

When consumers face higher interest rates for positive savings compared to when they have negative savings, it implies that borrowing costs are higher than the returns on savings. This situation can discourage consumption and investment. By cutting taxes, the government can increase disposable income, encouraging spending and investment, potentially increasing overall welfare. This does not directly relate to the economy's need for collateral, Ricardian equivalence, the size of the government, or the presence of asymmetric information.

If Consumers Face Higher Interest Rates When Their Savings Is