Question from Past Microeconomics Qualifying ExamEdit
Spring 2006 - Section I, Question eight, George Mason University
If expected income growth rises, but current income stays the same, the interest rate will fall.
False. If expected income growth rises, we would expect consumers to borrow against their future income, assuming they behave under some sort of consumption smoothing model. The rise in demand for loanable funds will cause the interest rate to increase.