A rise in the real interest rate ________ consumption expenditure and ________.
A) increases; shifts the consumption function upward
B) decreases; shifts the consumption function downward
C) increases; shifts the consumption function downward
D) decreases; shifts the consumption function upward
E) decreases; results in a movement downward along the consumption function

Question

Quizplus · Accepted Answer

A rise in the real interest rate makes borrowing more expensive and saving more attractive, leading to a decrease in consumption expenditure and a downward shift in the consumption function.

A Rise in the Real Interest Rate ________ Consumption Expenditure