As long as both current and future consumption are normal goods, a decrease in the interest rate will result in a drop in savings.
Answer the following statement true (T) or false (F)
False
Rationale: A decrease in the interest rate will cause a substitution effect that points in the direction of less savings but a wealth effect that points in a direction of more savings. Which dominates depends on the size of the substitution effect relative to the wealth effect.
You might also like to view...
Which of the following is not a barrier to entry?
A. Legal restrictions B. Patents C. Large sunk costs D. Survivor rights
Which of the following is not a result of a higher federal budget deficit?
A) a higher real interest rate B) an appreciation of the currency C) a rise in exports D) a fall in the price of foreign inputs
Both the new classical and new Keynesian models had in common the belief that
A) in the medium run, output returns to its natural level. B) output is always at its natural level. C) in the short run, output would likely deviate from its natural level. D) none of the above
The Norfolk Bank has $18,000 in excess reserves and the reserve ratio is 20 percent. How much checkable deposits and reserves does this bank hold?
A. $160,000 in checkable-deposit liabilities and $48,000 in reserves B. $140,000 in checkable-deposit liabilities and $46,000 in reserves C. $120,000 in checkable-deposit liabilities and $32,000 in reserves D. $100,000 in checkable-deposit liabilities and $30,000 in reserves