Final answer:
A higher interest rate in macroeconomics encourages individuals to save more and borrow less due to the increased cost of loans and the higher potential earnings on savings.
Step-by-step explanation:
In the language of macroeconomics, a higher interest rate induces people to save more and borrow less. This economic behavior is due to the increased cost of borrowing, which makes loans less attractive. As the interest rate goes up, the incentive for saving increases because individuals and businesses can earn more on their savings. Conversely, the cost of borrowing also goes up, so the quantity of financial investment tends to decrease, as shown in the scenario where the equilibrium shifts to a higher interest rate, R₁, and a lower quantity of financial investment, Q₁, due to foreign investors' diminished enthusiasm for U.S. financial assets. This balancing act between saving and borrowing helps establish a new equilibrium in the financial markets.