Higher interest rates are likely to
A) have no effect on consumer spending or saving.
B) decrease consumer spending and increase consumer saving.
C) decrease both consumer spending and consumer saving.
D) increase consumer spending and decrease consumer saving.

Question

Quizplus · Accepted Answer

Higher interest rates increase the cost of borrowing, making it less attractive for consumers to spend on credit. As a result, consumer spending decreases. On the other hand, higher interest rates also make it more attractive for consumers to save, as they can earn higher returns on their savings. Therefore, consumer saving is likely to increase.

Higher Interest Rates Are Likely to