A higher interest rate will lead consumers to
A)increase current consumption because their income will rise.
B)increase current consumption because their wealth will increase.
C)decrease current consumption because their savings will increase.
D)decrease current consumption because their future income will increase.

Question

Quizplus · Accepted Answer

A higher interest rate means that the return on savings will be higher, encouraging consumers to save more and spend less in the present. This results in a decrease in current consumption because they are saving more. Choices A and B are incorrect because a higher interest rate does not necessarily lead to an increase in income or wealth. Choice D is incorrect because a higher interest rate does not lead to an increase in future income.

A Higher Interest Rate Will Lead Consumers to