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Explain carefully what will happen to the interest rate if the income in the economy increased...

Explain carefully what will happen to the interest rate if the income in the economy increased (hint: use a graph in your answer)

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Answer #1

If the income increase then the disposable income increases that means that consumption will increase but with that the savings will also increase.And as economics says, increase saving leads to increase investment so the investment will increase.

And as wee know that investment has an inverese relation with the interest rate (I= ^I - bi) the increase in investment will lead to decreasein interest rate.

The diagram below shows the inverse curve which says that as income/investment increase the interest rate decreases.

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