If the real interest rate increases, there is
A) a movement upward along the consumption function.
B) a movement downward along consumption function.
C) an upward shift of the consumption function.
D) a downward shift of the consumption function.
E) a change in the slope of the consumption function.

Question

Quizplus · Accepted Answer

An increase in the real interest rate typically leads to a downward shift of the consumption function because higher interest rates encourage saving over spending, reducing consumption at each level of income.

If the Real Interest Rate Increases, There Is