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Dse 2009 question 55.
A fall in interest rate will..
a will reduce saving unambiguously.
b will have ambiguous effect on savings because of ambiguous substitution effect.
c will reduce savings unambiguously only for borrower.
d will reduce savings unambiguously only for lender.
Key given C.
My answer D.
Explanation: decrease in interest rate has a positive substitution effect on consumption in first period (C1) plus M1-C1 * income effect.
For a lender m1-c1 would be positive making the entire change in C1 positive which would imply spending would unambiguously increase which reduces saving in the first period.
pls Let me know.
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