An increase in the real interest rate will
A)cause consumers to spend more and save less.
B)most likely lower consumers' purchases of durable goods.
C)most likely lower the reward to savings.
D)most likely lower the cost of borrowing.
E)most likely transfer wealth from lenders to borrowers.

Question

Quizplus · Accepted Answer

An increase in the real interest rate makes borrowing more expensive and saving more attractive. This typically reduces consumer spending, especially on large, expensive items that often require financing, such as durable goods. Hence, consumers are likely to reduce their purchases of durable goods.

An Increase in the Real Interest Rate Will