When considering household savings, the relative price between consuming when young and consuming when old is the
A)consumption rate.
B)interest rate that individuals can earn on their private savings.
C)prime rate.
D)federal funds rate.

Question

Quizplus · Accepted Answer

The interest rate that individuals can earn on their private savings is important when considering household savings as it affects the relative price between consuming when young and consuming when old. Higher interest rates encourage individuals to save more when young so they can consume more in their old age. Therefore, the relative price between consuming now and consuming later is determined by the interest rate.

When Considering Household Savings, the Relative Price Between Consuming When