Jonathan is planning ahead for retirement and must decide how much to spend and how much to save while he's working in order to have money to spend when he retires.When the substitution effect dominates the income effect,an increase in the interest rate on savings is likely to
A)increase saving.
B)decrease saving.
C)have no effect on saving.
D)All of the above are possible.

Question

Quizplus · Accepted Answer

When the substitution effect dominates the income effect, the increase in the interest rate causes an increase in the reward for saving, making it more attractive to save. Therefore, an increase in the interest rate on savings is likely to increase saving.

Jonathan Is Planning Ahead for Retirement and Must Decide How