The Income Effect of an Increase in the Interest Rate

question 58

Multiple Choice

The income effect of an increase in the interest rate will result in an increase in​ consumption when

• A)young and an increase in savings when young.
• B)​old and an increase in savings when young.
• C)young and a decrease in savings when young.​
• D)​old and an increase in savings when old.

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Definitions:

Inventory

The total amount of goods and materials held in stock by a business, intended for sale or production purposes.

Opportunity Cost

The cost of the next best alternative foregone as the result of making a decision.

Investment Project

A project undertaken by individuals, firms, or governments involving the allocation of resources to create future benefits, such as income or profit.

Recession

A provisional downturn in economic conditions, involving a downturn in professional and industrial engagements, typically marked by a sequential GDP fall in two quarters.