Question

If the interest rate increases, then the: a. consumption function will shift up. b. economy will move to a new point along the existing consumption function. c. consumption function will shift down.

Answer 1

Answer:

c. consumption function will shift down.

Explanation:

Consumption function = A + Md

A = autonomous consumption

Md = Marginal propensity to consume

It is usually believed that disposable income is either saved or consumed.

If interest rate increases, consumption would fall because savings would increase.

Consumers woild substitute consumption for savings because consumption would become relatively more expensive.

I hope my answer helps you