The nominal interest rate is 5% and the inflation rate is 6%.A rational consumer
A)will not save since the real interest rate is negative.
B)will save less than 1% of her income.
C)will save the same amount regardless of the inflation rate; only the nominal interest rate matters.
D)might save despite the negative real interest rate.
E)will necessarily save less if the inflation rate rises and the nominal interest rate does not change.

Question

Quizplus · Accepted Answer

A rational consumer might still choose to save despite the negative real interest rate, as they understand that saving could still provide them with some level of financial security or future consumption. Additionally, other factors such as investment opportunities or personal preferences could also influence a consumer's decision to save or not.

The Nominal Interest Rate Is 5% and the Inflation Rate