What are the two channels through which an increase in the real interest rate affects consumption decisions?

Fantastic news! We've Found the answer you've been seeking!

Question:

What are the two channels through which an increase in the real interest rate affects consumption decisions? Can we tell which channel has a larger impact in theory? which channel has a larger impact? and why ? Explain

Related Book For answer-question

Microeconomics An Intuitive Approach with Calculus

ISBN: 978-0538453257

1st edition

Authors: Thomas Nechyba

See More Books

Posted Date: Feb 22, 2024 04:44 AM

See More Questions

QUIZ... Let D be a poset and let f : D D be a monotone function. (i) Give the definition of the least pre-fixed point, fix (f), of f. Show that fix (f) is a fixed point of f. [5 marks] (ii) Show that...
The Economic Stimulus Act of 2008 and the American Economic Recovery and Reinvestment Act of 2009 where the latest big experiments the U.S. has undertaken with large-scale fiscal stimulus. Recall...
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
Audrey has recently purchased a home with a $325,000 mortgage. She opted for monthly payments, a term of 5 years at a rate of 3.2%, and an amortization period of 25 years. Had Audrey chosen, instead,...
"When the stock market rises, investment spending is increasing." Is this statement true, false, or uncertain? Explain your answer.
R& D Inc. has the following financial data for the current year (millions): Earnings before R& D expenditures.......... $ 21.5 Interest expense................ $ 0.0 R& D expenditures...................
Describe the rights and responsibilities of employees.
Refer to P22-26A and P22-27A. Requirements 1. Prepare a budgeted balance sheet as of May 31, 2012. 2. Prepare the budgeted statement of cash flows for the two months ended May 31, 2012. (Note: You...
1. You need to modify an existing VHD file. Q: How do you proceed? 2. A web-based site is needed by all users on the company's network in order to perform research on the company's competitors. After...
Stakeholder are a large retailer for Walmart and you are opening a new store in a small rural town surrounded by other small towns ( Winnipeg beach) The following have been identified as...
Karrie is a golf pro, and after she paid taxes, her income from golf and interest on her financial assets was $1,500,000 in 2020. At the beginning of 2020, she owned $900,000 worth of financial...
The U.S. price level is 115, the Japanese price level is 92, and the real exchange rate is 98.75 units of Japanese real GDP per unit of U.S. real GDP. What is the nominal exchange rate?
Classify each of the following items as a final or an intermediate good or service, and identify which is a component of consumption expenditure, investment, or government expenditure on goods and...
Lebanon has maintained the same exchange rate between the Lebanese pound and the U.S. dollar for more than 20 years. While some argue that continuing with this system is unsustainable for the central...
What is the nature of each of the following warranties: merchantability, fitness for a particular purpose, and usage of trade?
1. The normal cell become cancer cell, this process is called O a. Transformation O b. Tumor O c. Metastasis
Chris Zulliger was a chef at the Plaza Restaurant in the Snowbird Ski Resort in Utah. The restaurant is located at the base of a mountain. As a chef for the Plaza, Zulliger was instructed by his...
Suppose the current tax system is such that the government takes some fixed percentage t of any labor income that you make. A. Some in Congress have proposed the following alternative type of tax...
Childrens Toys and Gucci Products: In most of our development of consumer theory, we have assumed that tastes are independent of what other people do. This is not true for some goods. For instance,...
Consider again the Battle of the Sexes game described in exercise 24.4. Recall that you and your partner have to decide whether to show up at the opera or a football game for your date with both of...
According to the pecking order theory: A. new debt is preferable to new equity. B. new debt is preferable to internally generated funds. C. new equity is always preferable to other sources of capital.
According to the static trade-off theory: A. debt should be used only as a last resort. B. companies have an optimal level of debt. C. the capital structure decision is irrelevant.
All else equal, the use of long-maturity debt is expected to be greater in those markets in which: A. inflation is low. B. capital markets are passive and illiquid. C. the legal systems protection of...

What are the two channels through which an increase in the real interest rate affects consumption decisions?

Question:

Expert Answer:

An increase in the real interest rate affects consumption decisions through two main channels 1 Substitution Effect When the real interest rate rises ... View the full answer

Microeconomics An Intuitive Approach with Calculus

Students also viewed these economics questions