When the real interest rate rises, there is
A) an upward movement along the consumption function.
B) a downward movement along the consumption function.
C) an upward shift of the consumption function.
D) a downward shift of the consumption function.
E) neither a shift of the consumption function or a movement along the consumption function.

Question

Quizplus · Accepted Answer

When the real interest rate rises, borrowing becomes more expensive, leading to a decrease in consumption at each level of income, causing a downward shift of the consumption function.

When the Real Interest Rate Rises, There Is