When the real interest rate falls, the consumption function
A) shifts upward.
B) does not shift and there is no movement along the consumption function.
C) shifts downward.
D) does not shift and there is a movement upward along the consumption function.
E) does not shift and there is a movement downward along the consumption function.

Question

Quizplus · Accepted Answer

When the real interest rate falls, it becomes cheaper for consumers to borrow money, which increases their disposable income and allows them to spend more. This causes a shift upward in the consumption function.

When the Real Interest Rate Falls, the Consumption Function