In the Keynesian model,what impact will an increase in interest rates have on consumption?
A)It will increase current consumption and reduce current savings.
B)It will reduce current consumption due to higher monthly payments on debt.
C)It will increase current autonomous consumption as interest income rises.
D)It will reduce future consumption due to higher interest payments.

Question

Quizplus · Accepted Answer

In the Keynesian model, an increase in interest rates will lead to higher monthly payments on debt, which will reduce current consumption. This is because individuals will have less disposable income due to the higher debt payments, leading to reduced purchasing power. As a result, they may delay or reduce their spending on goods and services, leading to a decrease in current consumption.

In the Keynesian Model,what Impact Will an Increase in Interest