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.

Economics

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