A decrease in the real interest rate acts as ________ for lenders and as ________ for borrowers.
A) an increase in wealth; an increase in wealth
B) an increase in wealth; a decrease in wealth
C) a decrease in wealth; an increase in wealth
D) a decrease in wealth; a decrease in wealth

Question

Quizplus · Accepted Answer

A decrease in the real interest rate reduces the returns lenders receive on their savings, effectively decreasing their wealth. For borrowers, lower interest rates reduce the cost of borrowing, effectively increasing their wealth by making loans cheaper.

A Decrease in the Real Interest Rate Acts as ________