When the elasticity of substitution in the constant elasticity of substitution utility function lies above 1, an increase in the interest rate will cause a saver to save less.
Answer the following statement true (T) or false (F)
False
Rationale: Cobb-Douglas tastes --- which are CES tastes with elasticity of substitution of 1, represent the borderline case where an increase in the interest rate causes no change in savings behavior. For higher elasticities of substitution, the substitution effect dominates --- causing savings to increase with the interest rate.
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