Suppose That the Real Interest Rate Climbs

Multiple Choice

Suppose that the real interest rate climbs. In that case,

A) the income effect pushes consumption in the first year up in opposition to the substitution effect that pushes down first-year consumption.
B) the income effect pushes consumption up in the second year and is supported by a second push generated in year 2 by the substitution effect.
C) it would be impossible to tell whether consumption increases or decreases in year 1 because the income and substitution effects push in opposite directions.
D) the substitution effect tends to depress current consumption because future consumption becomes less expensive.
E) all of the above.