How do interest rates affect consumption in the economy?
A)Lower interest rates encourage consumers to save more money, and thus consumption rises.
B)Lower real interest rates raise the opportunity cost of consumption, and thus consumption falls.
C)Higher interest rates discourage consumers from making financed purchases, and this lowers consumption.
D)Higher interest rates make it more expensive for firms to take loans, and so consumption falls.

Question

Quizplus · Accepted Answer

Higher interest rates discourage consumers from taking loans, making it more expensive to finance purchases, which leads to a decrease in consumption. Conversely, lower interest rates make it cheaper to borrow, increasing consumers' willingness to take out loans and spend money, thus boosting consumption.

How Do Interest Rates Affect Consumption in the Economy