Which of the Following Best Explains Why Consumption Expenditures Are

Multiple Choice

Which of the following best explains why consumption expenditures are affected by real interest rates?

A) Higher real interest rates make it more expensive to finance the purchase of a new home.
B) When interest rates are high, banks stop lending to households.
C) An increase in real interest rates encourages people to save a larger proportion of their income, which means there is less income for consumption.
D) When real interest rates are low, it is more difficult for households to borrow money because the supply of savings is low.
E) When real interest rates are high, it is more difficult for households to borrow money because the supply of savings is low.