question archive Real risk free interest rate is affected by “time preference of consumption" and "risk aversion"
Real risk free interest rate is affected by “time preference of consumption" and "risk aversion"
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Real risk free interest rate is affected by “time preference of consumption" and "risk aversion". If people do not want to spend now they supply more funds, so the real risk free interest rate (a) On the other hand, when the general level of risk aversion increases, lenders demand more return to compensate for the risk, so the real risk free interest rate (b) (Hint: Fill the blanks with "increase" and/or "decrease")
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If people want to consume more and do not save, the economy will fall. To sfop this the government will offer a higher interest rate on savings to encourage people to save. Also, if there are alot of funds coming, and people are not spending, the government will try to reduce the interest rates on savings to encourage spending. Hence, the correct option is-
(A) decreases
(B) increases
