For a lender, an increase in the real interest rate
A)reduces current consumption and has an uncertain effect on future consumption.
B)has an uncertain effect on both current and future consumption.
C)definitely reduces current consumption and increases future consumption.
D)definitely reduces current consumption and future consumption.
E)has an uncertain effect on current consumption and increases future consumption.

Question

Quizplus · Accepted Answer

An increase in the real interest rate makes saving more attractive, which can lead to an uncertain effect on current consumption as individuals may choose to save more or less. However, it increases future consumption as the lender earns more from the interest.

For a Lender, an Increase in the Real Interest Rate