A higher interest rate ________ and ________.
A) reduces the present value of future income; reduces today's consumption
B) increases the present value of future income; increases today's consumption
C) increases the discount rate; increases today's consumption
D) is an incentive to borrow more today; reduces future consumption
E) reduces inflation; consumers spend more today

Question

Quizplus · Accepted Answer

A higher interest rate reduces the present value of future income because it makes future cash flows worth less today (due to the higher discount rate), and it reduces today's consumption because it makes borrowing more expensive and saving more attractive.

A Higher Interest Rate ________ and ________

A Higher Interest Rate and