Suppose a U.S. firm purchases some English china. The china costs 1,000 British pounds. At the exchange rate of $1. 45 = 1 pound, the dollar price of the china is

Which of the following statements concerning saving is true?

A. A country's saving rate is unrelated to its growth rate. B. A country's growth rate is unrelated to its national income. C. An increase in the rate of saving will lead to a reduction in consumption in the short run and in the long run. D. An increase in the rate of saving decreases gross domestic income by reducing current consumption but increases current and future gross domestic income through investment in capital goods.

Use the intertemporal budget constraint — equation (2 ) — to explain how an increase in the real interest rate causes two distinct effects, an income effect and a substitution effect,

and how those effects differ depending on whether the consumer is a saver or a borrower.