Please help me clarify this-
Case 1 - If interest rates increase then people will save more to reap the benefits and will cut down on their consumption(C) so Consumption will fall.
Case 2 - Due to high interest rates - For every rupee saved, people's incomes will increase and their net wealth rises as a result of which consumption will increase.
so, Will consumption rise or fall with increase in interest rate? which case is likely to be more true and why? If we get an objective type question in exam which one should we mark?
Thank you so much for your help & support