15. If the real interest rate on saving accounts increases from 2% to 4%, all ot

Question

15. If the real interest rate on saving accounts increases from 2% to 4%, all other things equal a. Business investment spending for new capital will increase b. People will be more willing to save c. Business investment spending for new capital will remain unchanged d. People will be less willing to save. 16. Other things equal, relatively poor countries tend to grow: a. Faster than relatively rich countries, this is called the catch-up effect. b. Faster than relatively rich countries, this is called the constant-returns-to-scale effect. c. Slower than relatively rich countries, this is called the poverty trap. d. Slower than relatively rich countries, this is called the fall-behind effect.

Explanation / Answer

15. Option “b” is correct. As real interest rate on saving accounts increases people prefer to save more as returns from saving are higher. The effect on buisness Therefor we can say that people will be more willing to save.

16. Option “b” is correct. What happens in catch-up effect is that poor countries tend to grow faster because of higher possibilities of growth to catch up with richer countries in terms of per capita income. Poor countries require less capital to make significant gains compared to rich countries.

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