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Microeconomics Question from Walter E. Williams:Edit

"A rise in the rate of interest will generally tend to make young people better off and old people worse off." Would you regard this as a decent generalization? Discuss. Explain what assumptions are relevant to appraising the statement.

AnswerEdit

Young people tend to be borrowers, as their wealth rests in the future. The value of future goods increases when the interest rate decreases. Old people tend to be lenders as their wealth is all in the present. As lenders, they benefit from a rise in interest rates. The discounted present value of the future wealth of young people is reduced by higher interest rates.

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