Which of the following statements is incorrect about the effect of expectatio...
Which of the following statements is incorrect about the effect of expectations on private spending?a. If the increase in current sales justifies an increase in investment, the firm is likely to make a large investment, and the change in investment may exceed the change in sales.b. An increase in the real interest rate increases consumer's human wealth, thereby encouraging consumption.c. Expectations affect consumption indirectly through their effect on consumers' nonhuman wealth.d. A decrease in the expected future real interest rate increases the present value of profits, making firms more likely to invest.static/image/hrline/line5.png
An increase in real interest rate increases consumer's human wealth, thereby encouraging consumption.( An increase in real interest rate has an adverse impact on consumption. An increase in real interest rate implies higher returns from savings. So it makes consumption expensive compared to saving. People would prefer to save. savings would increase. Consumption would decrease. )
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