At higher rates of interest
A) households save less because it is more expensive to save.
B) households save more because they get a greater return on their savings.
C) businesses demand more investment because future profitability is likely to be greater.
D) businesses demand more investment because there are more funds available to invest.

Question

Quizplus · Accepted Answer

At higher rates of interest, households tend to save more because they can earn a greater return on their savings. This is because higher interest rates increase the opportunity cost of consumption, making it more expensive to borrow money and therefore encouraging savings. Alternatively, lower interest rates discourage savings and encourage borrowing and consumption. Therefore, option B is the correct answer. Options A, C, and D are less likely to be true at higher rates of interest.

At Higher Rates of Interest