what will happen to the current consumption level in an intemporal choice when interest rate on saving increases?
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the consumer is a net saver, an increase in interest rate will have an ambiguous effect on the current consumption. If the consumer is a net borrower, an increase in interest rate will reduce his current consumption.
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Rates of saving in America have never been especially high, but they seem to have dipped even lower in recent years, as the data from the Bureau of Economic Analysis in Figure 1 show. A decision about how much to save can be represented using an intertemporal budget constraint. Household decisions about the quantity of financial savings show the same underlying pattern of logic as the consumption choice decision and the labor-leisure decision.
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