Calculating the Cost of Early Consumption

Imagine an individual is deciding how much of their income to spend this year versus how much to save and spend next year. If the market interest rate unexpectedly increases, what is the most direct economic consequence for their decision?

The Price of Now vs. Later

A zero interest rate means that there is no opportunity cost to consuming a good today rather than consuming it in the future.

Borrowing, Lending, and the Price of Time

The interest rate acts as the 'price' of shifting consumption between the present and the future. Analyze the following economic descriptions and match them to the scenario they best represent.

An individual is weighing their options for a portion of their income. They find that they are equally happy with either spending an additional $100 today or saving it to have an additional $108 one year from now. Which statement best analyzes this individual's situation?

When economists describe the interest rate as the 'price' of consuming now, they are referring to the cost of bringing future ____ into the present.

Intertemporal Consumption Choices

Welfare Effects of Interest Rate Changes