What Effect Do Higher Interest Rates Have on Consumer Spending

question 157

Multiple Choice

What effect do higher interest rates have on consumer spending?

• A) Consumer spending increases as people try to quickly buy goods before rates go even higher.
• B) Consumer spending decreases immediately, but then rises sharply after consumers get used to the new higher interest rates.
• C) Consumer spending is not impacted by changes in interest rates.
• D) Consumer spending decreases.
• E) It is not possible to tell from the information given.

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Definitions:

MRP

In economics, Marginal Revenue Product is the additional revenue generated by employing one more unit of a resource.

Market Wage Rate

The prevailing pay scale for work performed in a specific industry or occupation in a geographical area.

Hiring Labor

The process of employing people to perform work or services for wages or salary.

Optimum Resource Mix

The combination of inputs that allows a firm to produce output at the lowest possible cost.