Figure 21-29
The figure below illustrates the preferences of a representative consumer, Nathaniel.
-Refer to Figure 21-29. Interest rates increase by 4 percent. Nathaniel's optimal choice point moves from A to B. Nathaniel consumes
A)less while he is younger and saves more than he did before interest rates increased.
B)more while he is younger and saves more than he did before interest rates increased.
C)less while he is younger and saves less than he did before interest rates increased.
D)more while he is younger and saves less than he did before interest rates increased.

Question

Figure 21-29
The figure below illustrates the preferences of a representative consumer, Nathaniel. 
-Refer to Figure 21-29. Interest rates increase by 4 percent. Nathaniel's optimal choice point moves from A to B. Nathaniel consumes
A)less while he is younger and saves more than he did before interest rates increased. 
B)more while he is younger and saves more than he did before interest rates increased. 
C)less while he is younger and saves less than he did before interest rates increased. 
D)more while he is younger and saves less than he did before interest rates increased.

Quizplus · Accepted Answer

When interest rates increase, Nathaniel's optimal choice point moves from A to B, which means he consumes more while he is younger and saves less than he did before interest rates increased. This is because the higher interest rates make it more attractive to postpone consumption and save more for future consumption. So, Nathaniel will consume more in the present and save less for future consumption.

Figure 21-29 The Figure Below Illustrates the Preferences of a Representative Consumer