Question

If a consumer views a unit of consumption in period 1 as a perfect substitute for a unit of consumption in period 2 and if the real interest rate is positive, the consumer will: a) Consume only in period 1. b) Consume only in period 2. c) Consume equal amounts in each period. d) Consume more in period 1 than in period 2 if income elasticity exceeds 1, else would consume more in period 2 than in period 1. e) Equalize expenditures but not consumption in the two periods.

Answer 1

Answer:

The answer is "Choice a".

Explanation:

When a consumer considers the consumer unit throughout period 1 also as perfect for a unit in period 2 as well as the real system is a vital one, the customer is seeing negative interest rates, indicating also that saving over the next time frame would then lead to lower incomes. Its customer would then seek to maximize usage of either better because both consumption rates are replacements. It'd be in period 1, in this case.