There are two societies, A and B, that are alike in every way but one. In society A, people have a high rate of time preference, and in society B, people have a low rate of time preference. It follows that

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In society A, where people have a high rate of time preference (i.e. they heavily discount future consumption), the demand for consumption loans will likely be higher than in society B, where people have a low rate of time preference. This higher demand for consumption loans will increase the interest rates in society A. On the other hand, society B, where people have a low rate of time preference (i.e. they place greater value on future consumption relative to present consumption), will likely have a lower demand for consumption loans, leading to lower interest rates. Therefore, interest rates will be lower in society B than A. The rate of time preference is related to intertemporal consumption smoothing and has little to do with saving. Hence, choices A and C are incorrect. Choice D is incorrect because if interest rates are lower in society B, then they cannot be lower in society A.

There Are Two Societies, a and B, That Are Alike