The following figure plots real interest rate against quantity of credit.

-Refer to the figure above.All else being equal,an increase in the interest rate will lead to ________.

Question

The following figure plots real interest rate against quantity of credit.
 
-Refer to the figure above.All else being equal,an increase in the interest rate will lead to ________.

Quizplus · Accepted Answer

According to the figure, as the real interest rate increases from point A to point B, the quantity of credit demanded decreases. This implies that individuals and firms are less willing to take on debt at higher interest rates. Instead, they may choose to save more, as higher interest rates provide a greater return on their savings. Therefore, an increase in the interest rate will lead to more savings.

The Following Figure Plots Real Interest Rate Against Quantity of Credit