If a Consumer Is a Borrower in Period One and the Interest

question 5

Multiple Choice

If a consumer is a borrower in period one and the interest rate rises, the:

• A) income and substitution effects both tend to make consumption higher in the first period.
• B) income and substitution effects both tend to make consumption lower in the first period.
• C) income effect tends to make consumption higher in the first period and the substitution effect tends to make it lower.
• D) substitution effect tends to make consumption higher in the first period and the income effect tends to make it lower.

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