Suppose consumption in year 2 (C2) is on the vertical axis and consumption in year 1...
Suppose consumption in year 2 (C2) is on the vertical axis and consumption in year 1 (C1) is on the horizontal axis. An increase in the interest rate:
| A. |
causes more people to shift their consumption from year 2 to year 1. |
|
| B. |
will reduce savings in year 2. |
|
| C. |
causes the budget line to rotate outward along the vertical axis. |
|
| D. |
makes borrowers better off and lenders worse off. |
Homework Answers
C - is correct
Slope of budget line = (1+r)
Increase in r increases slope and makes the budget line
flatter.
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Suppose consumption in year 2 (C2) is on the vertical
axis and consumption in year 1...
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