Suppose Consumption in Year 2 (C₂)is on the Horizontal Axis

question 65

Multiple Choice

Suppose consumption in year 2 (C₂) is on the horizontal axis and consumption in year 1 (C₁) is on the vertical axis.An increase in the interest rate:

• A)makes borrowers better off and lenders worse off.
• B)causes more people to shift their consumption from year 2 to year 1.
• C)causes the budget line to rotate outward along the horizontal axis.
• D)will reduce savings in year 2.

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Definitions:

Money Supply

Money Supply is the total amount of monetary assets available in an economy at a specific time, including cash, coins, and balances held in bank accounts.

Interest Rate

The cost of borrowing money, typically expressed as a percentage of the principal, paid over a specific period.

Federal Reserve

The central banking system of the United States, which regulates the U.S. money supply and is responsible for monetary policy.

Money Supply

Money supply is the total amount of monetary assets available in an economy at a specific time, including cash, coins, and balances held in checking and savings accounts.