ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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A household that is a net saver owes less money to its creditors than it has saved or has lent out to other entities. If there is an increase in interest
rates in an economy, then what will happen to the consumption of the households in that economy that are net savers?
O Both the income and substitution effects will drive their current consumption down.
O The income effect will drive their current consumption up, but the substitution effect will drive it down.
O The income effect will drive their current consumption down, but the substitution effect will drive it up.
O Both the income and substitution effects will drive their current consumption higher.
The income effect will drive their current consumption up and the substitution effect will keep it unchanged.
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Transcribed Image Text:A household that is a net saver owes less money to its creditors than it has saved or has lent out to other entities. If there is an increase in interest rates in an economy, then what will happen to the consumption of the households in that economy that are net savers? O Both the income and substitution effects will drive their current consumption down. O The income effect will drive their current consumption up, but the substitution effect will drive it down. O The income effect will drive their current consumption down, but the substitution effect will drive it up. O Both the income and substitution effects will drive their current consumption higher. The income effect will drive their current consumption up and the substitution effect will keep it unchanged.
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