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.

Question

Quizplus · Accepted Answer

An increase in the real interest rate increases the cost of borrowing, making it more expensive for consumers to finance big-ticket items such as houses and cars. This most likely will lower consumers' purchases of durable goods like these.

Answer: C 
 An increase in the real interest rate means that savers will earn a higher rate of return on their savings. This will increase the reward to savings and incentivize people to save more.

Therefore, the best choice(s) are B and C.

An Increase in the Real Interest Rate Will