What are the effects of an increase in the real interest rate on consumption in each period, and on savings? How does this depend on income and substitution effects and whether the consumer is a borrower or lender? Holding current disposable income constant, an increase in the real interest rate for a borrower Holding current disposable income constant, an increase in the real interest rate for a lender the income effect is current consumption, current consumption, future consumption, and future consumption, and than the substitution effect, then saving increases. than the substitution effect, current consumption increases. If the income effect is will increase current savings. current savings. If may increase or decrease will decrease

What are the effects of an increase in the real interest rate on consumption in each period, and on savings? How does this depend on income and substitution effects and whether the consumer is a borrower or lender? Holding current disposable income constant, an increase in the real interest rate for a borrower Holding current disposable income constant, an increase in the real interest rate for a lender the income effect is current consumption, current consumption, future consumption, and future consumption, and than the substitution effect, then saving increases. than the substitution effect, current consumption increases. If the income effect is will increase current savings. current savings. If may increase or decrease will decrease

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter9: Aggregate Demand

Section: Chapter Questions

Problem 1.3P

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