2. The supply of saving Suppose that Susan receives a pay raise of $1,050 per ye

Question

2. The supply of saving Suppose that Susan receives a pay raise of $1,050 per year. She can either use the extra money to consume goods and services, or she can save it by depositing it in a bank. For each of the alternative annual interest rates in the following table, indicate how much interest Susan would earn per year on her annual raise if she saves it. (Note: Assume that no income taxes are deducted.,) Interest Earned (Dollars) (Dollars) Interest Rate (Percent) 20 A lower interest rate gives Susan incentive to save.

Explanation / Answer

1. 1050 x 8% = $ 85

2. 1050 x 20% = $ 210

3. less incentive

4. Curve B because there is direct relationship between interest rate and savings of people. When interest rate increases then people are more willing to save money and vice-versa.

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