An Increase in the Real Interest Rate Will

question 191

Multiple Choice

An increase in the real interest rate will

• A)cause consumers to spend more and save less.
• B)most likely lower consumers' purchases of durable goods.
• C)most likely lower the reward to savings.
• D)most likely lower the cost of borrowing.

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Definitions:

Equivalent Variation

An economic measure of the difference in income that a consumer would require to reach the same level of utility before and after a price change.

Income

The sum of funds earned, often periodically, from employment or investment returns.

Demand Function

A mathematical equation that describes the relationship between the quantity of a good demanded and its price, along with other factors like income and price of related goods.

Consumer's Surplus

The difference between the total amount that consumers are willing and able to pay for a good or service and the total amount that they actually do pay.