If consumption when young and when old are both normal goods, an increase in the interest rate ?

Question

If consumption when young and when old are both normal goods, an increase in the interest rate ?

Answer 1

A. will always increase the quantity of saving
B. will always decrease the quantity of saving
C. will increase the quantity of saving if the substitution effect outweighs the income effect
D. will increase the quantity of saving if the income effect outweighs the substitution effect

Correct Answer: will increase the quantity of saving if the substitution effect outweighs the income effect ✔

Last Updated: June 11, 2019