The Substitution Effect of an Increase in the Interest Rate

question 352

Multiple Choice

The substitution effect of an increase in the interest rate will result in an increase in

• A)consumption when young and increase in savings when young.
• B)consumption when old and an increase in savings when young.
• C)consumption when young and an increase in savings when old.
• D)savings when old and an increase in consumption when old.

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Definitions:

Elasticity of Supply

A measure of how much the quantity supplied of a good changes in response to a change in price.

Free Rider Problem

The Free Rider Problem occurs in situations where individuals or entities benefit from resources, goods, or services without paying for them, leading to underprovision of those goods or services.

Home Football Game

A football match played at the team's own stadium or official field, often having a supportive home crowd.

Free Rider

An individual or entity that benefits from resources, goods, or services without paying for them, often leading to market failures.