When Households Decide to Hold More Money

question 63

Multiple Choice

When households decide to hold more money,

• A)interest rates fall and investment decreases.
• B)interest rates fall and investment increases.
• C)interest rates rise and investment increases.
• D)interest rates rise and investment decreases.

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Definitions:

Disposable Income

The funds left for households to manage spending and saving after income tax calculations.

Consumption

The part of personal income that is spent on goods and services rather than saved, influencing economic activity and demand.

Savings

The portion of income not spent on current expenditures or taxes, which is set aside for future use or investment.

Autonomous Consumption

Spending that does not depend on current income levels, such as basic necessities, implying that this consumption occurs even in the absence of income.