Principles of Microeconomics / Unit 3 MIC 0217 short lesson, about 20 seconds
Saving and the Interest Rate: Two Effects
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The idea
A higher rate makes consuming now dearer, so people substitute toward saving. It also lets a saver reach a target with less saving, so income pulls the other way.
In practice
The supply of funds slopes up because the first effect usually wins.
Where people slip
The pair is the same one that bends the labor supply curve. Unit five names them income and substitution effects.
Your place on the trail
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