The Main Reason That a Theory Cannot Predict the Effect

question 74

Multiple Choice

The main reason that a theory cannot predict the effect of an increase in the real interest rate on national saving is

• A)for borrowers,the substitution and income effects operate in the same direction,but for lenders they operate in the opposite direction.
• B)for lenders,the substitution and income effects operate in the same direction,but for borrowers they operate in the opposite direction.
• C)for lenders and borrowers,the substitution and income effects operate in the opposite direction.
• D)for lenders and borrowers,the substitution and income effects operate in the same direction.

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Definitions:

Note Payable

A written promise to pay a certain amount of money at a future date, often including interest.

Borrower

An individual or entity that takes out a loan from another entity or individual under the agreement to repay the amount borrowed, typically with interest.

Creditor

An individual, company, or institution that lends money or extends credit to another party, expecting to be repaid in the future.

Discount Rate

The interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.