When Interest Rates Increase, the Substitution Effect Suggests That Individuals

question 271

Multiple Choice

When interest rates increase, the substitution effect suggests that individuals will

• A) consume less today.
• B) save less today.
• C) consume less in the future.
• D) save more and consume more today.

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Definitions:

Void Ab Initio

Describes a contract or agreement that is considered null from its inception, meaning it never had legal validity.

Insurable Interest

A stake in the value of an entity or event for which an insurance policy may be obtained to cover losses.

Insurance Contract

A legally binding agreement between an insurer and an insured, where the insurer promises to pay benefits for specific potential future losses in exchange for premiums paid by the insured.

Risk Assessment

The identification, evaluation, and prioritization of risks followed by coordinated efforts to minimize or control their impact.