The supply of savings is positively sloped because:

Question

Quizplus · Accepted Answer

The supply of savings is positively sloped because people are enticed to save more and forgo consumption when the interest rates are higher. This is because higher interest rates provide more return on savings, which makes it more attractive for people to save their money instead of spending it. As a result, the quantity of savings supplied by individuals and firms increases as interest rates rise. Choice A is incorrect because firms' borrowing is not directly related to the supply of savings. Choice C may be true, but it does not explain why the supply of savings is positively sloped. Choice D is also a valid reason, but time preference explains why people prefer present consumption to future consumption and not why the supply of savings is positively sloped.

The Supply of Savings Is Positively Sloped Because