Slope as a Positive Value in Economic Trade-offs

Real Interest Rate (r)

Borrowing to Shift Consumption from the Future to the Present

Activity: Constructing Julia's Feasible Frontier

Consumption Smoothing

Economic Definition of Impatience

Optimal Intertemporal Choice as Tangency Point

Simplifying Assumption: Zero Inflation

Assumption of Constant Impatience in the Intertemporal Choice Model

MRT as the Rate of Transforming Future Consumption to Present Consumption

An individual initially chooses to be a saver, meaning they consume less than their income in the present to consume more in the future. If the interest rate increases, what is the definitive effect on their situation, assuming consumption in both periods is a normal good?

Consumption Decision Over Time

Optimal Intertemporal Consumption Choice

Consider an individual who is a borrower, choosing how to allocate consumption between a present period and a future period. If the interest rate they face for borrowing decreases, this individual will unambiguously be made better off.

Arrange the following steps in the correct order to determine an individual's optimal intertemporal consumption choice within the intertemporal choice model.

Match each component of the standard intertemporal choice graph with its correct economic description. The graph's horizontal axis represents 'Consumption Now' and the vertical axis represents 'Consumption Later'.

Analysis of Intertemporal Preferences and Constraints

In a model of choice between consumption now and consumption later, the feasible frontier illustrates all possible combinations of consumption an individual can afford. If the interest rate for borrowing and saving is 8%, the opportunity cost of consuming one additional dollar today is giving up $____ of consumption in the future.

Calculating Maximum Present Consumption

Consider an individual whose income is the same in the present period as it is in the future period. This combination of incomes, where they neither borrow nor lend, is their 'endowment point'. The market allows them to borrow or save at a given interest rate, which defines their feasible consumption possibilities. If this individual's optimal choice involves consuming more in the present than their current income, what must be true about their preferences when evaluated at their endowment point?

Opportunity Cost of Present Consumption

Endowment in Intertemporal Choice

Applying the Constrained Choice Framework to Intertemporal Decisions