If Saving Falls During Booming Times in the Economy, Then

question 138

Multiple Choice

If saving falls during booming times in the economy, then the equilibrium real interest rate _____ and the quantity of loanable funds _____.

• A) falls; rises
• B) rises; falls
• C) falls; falls
• D) rises; rises

---

Definitions:

Reallocating Expenditures

The process of adjusting how money is spent across different goods, services, or categories to optimize outcomes or achieve desired objectives.

Substitution Effect

(1) A change in the quantity demanded of a consumer good that results from a change in its relative expensiveness caused by a change in the good’s own price. (2) The reduction in the quantity demanded of the second of a pair of substitute resources that occurs when the price of the first resource falls and causes firms that employ both resources to switch to using more of the first resource (whose price has fallen) and less of the second resource (whose price has remained the same).

Product Quality

Refers to the characteristics and features of a product that contribute to its ability to meet given requirements or expectations.

Budget Constraint

The limit that the size of a consumer’s income (and the prices that must be paid for goods and services) imposes on the ability of that consumer to obtain goods and services.