The Substitution Effect of a Change in the Real Interest

question 34

Multiple Choice

The substitution effect of a change in the real interest rate is an example of

• A) an intratemporal substitution effect.
• B) an intertemporal substitution effect.
• C) an atemporal substitution effect.
• D) a temporary substitution effect.

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Definitions:

Disposable Income

Funding available to households for their spending and saving plans post income tax cuts.

Savings

The portion of income that is not spent on consumption but set aside for future use, often in a bank account or investment vehicle.

Consumption

The use of goods and services by households or individuals, constituting one of the primary components of the economy alongside investment, government spending, and net exports.

Savings

The portion of income not spent on consumption of goods and services but kept aside, usually in deposit accounts or investments.