The income and substitution effects of an Interest rate change a) If the interest rate increases from 5% to 10% what becomes relatively more expensive, consumption now or consumption later? Explain why! b) What is the substitution effect of an increase in interest rates? c) What is the income effect of an increase in interest rates for a natural borrower? d) What is the income effect of an increase in interest rates for a natural lender? e) Combining the substitution effects and income effects under what conditions will an increase in interest rates cause consumption now to increase, decrease or remain the same for a natural borrower? f) Combining the substitution effects and income effects, under what conditions will an increase in interest rates cause consumption now to increase, decrease or remain the same for a natural lender