Consumption can be sensitive to changes in the real interest rate because:
A)Higher interest rates can increase the cost of durable goods like automobiles.
B)Higher interest rates will result in less saving.
C)Lower real interest rates will decrease spending on durable goods and increase spending on non-durable goods.
D)Lower interest rates increase savings.

Question

Quizplus · Accepted Answer

Higher interest rates can make borrowing more expensive, increasing the cost of purchasing durable goods like automobiles. As a result, some consumers may reduce their spending on these goods, impacting consumption levels.

Consumption Can Be Sensitive to Changes in the Real Interest