If the real rate of interest decreases,target savers will ________ the amount they save each year.

Question

Quizplus · Accepted Answer

When the real rate of interest decreases, the return on savings accounts or bonds becomes less attractive, leading to a lower incentive for saving. Therefore, target savers will increase the amount they save each year to maintain their desired level of future consumption. This is known as the income-substitution effect.

If the Real Rate of Interest Decreases,target Savers Will ________