Final answer:
c. decrease : increase
Less confidence in the economy typically leads to decreased national saving and an increased equilibrium interest rate, as people consume their savings and increasing demand for funds drives up interest rates.
Step-by-step explanation:
When people become less confident in the state of the economy, it is likely to cause national saving to decrease and the equilibrium interest rate to increase. This is because as confidence in the economy wanes, people may choose to spend less and save more, anticipating potential financial difficulties.
However, in this scenario, the reduced confidence actually leads to a decrease in savings because people might consume their savings to maintain their living standards amid economic uncertainty.
Furthermore, if the government runs a budget deficit or there are other causes such as a surge in investment, the demand for funds increases. When savings in the economy are not sufficient to meet this demand, the interest rate is pushed up. The correct answer to the question is therefore 'c. decrease : increase'.