If Pakistani citizens discount the future more heavily and reduce savings across all real interest rates ?
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Answer: A. Real interest rates rise and investment falls
Explanation
A heavier discount on the future reduces savings across all real interest rate levels in the economy. This reduction in household savings shifts the supply curve of loanable funds sharply to the left. A leftward shift in loanable funds supply drives real interest rates up while reducing total capital investment. Discounting the future heavily reflects high time preference, where people value immediate consumption over future rewards. Investment funding depends directly on national savings, connecting household time preferences to business capital formation. Financial markets clear where the supply of loanable funds intersects the business demand for investment capital.
Option B is incorrect because reduced savings causes investment to fall rather than rise alongside higher interest rates. Option C is incorrect because a leftward supply shift raises real interest rates rather than lowering them. Option D is incorrect because while investment falls, real interest rates rise rather than fall.
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