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Intertemporal Choice Model
Slope as a Positive Value in Economic Trade-offs
In economic analysis, particularly when discussing trade-offs like those between present and future consumption, there is a specific convention for describing the slope of downward-sloping lines. While geometrically such lines have a negative slope, economists typically use the absolute value, referring to the slope as a positive number. This simplification makes it easier to describe the trade-offs faced by economic agents, such as borrowers.
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CORE Econ
Economics
Social Science
Empirical Science
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Economy
Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Ch.9 Lenders and borrowers and differences in wealth - The Economy 2.0 Microeconomics @ CORE Econ
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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
Learn After
An individual faces a trade-off between consumption today (measured on the horizontal axis) and consumption in the future (measured on the vertical axis). The line representing all possible combinations of consumption passes through two points: Point A (100 units today, 220 units in the future) and Point B (200 units today, 110 units in the future). Based on the standard convention for describing such trade-offs, how is the rate of exchange between future and present consumption best described?
Interpreting the Slope of a Trade-Off
Consider a graph where the vertical axis represents units of future consumption and the horizontal axis represents units of present consumption. An individual's budget line on this graph slopes downward. A statement that 'the mathematical slope of the line is -1.1' and a statement that 'the economic trade-off is 1.1 units of future consumption for every 1 unit of present consumption' are contradictory statements.
Communicating Economic Trade-offs
Critiquing an Economic Interpretation
An economist is analyzing a graph that shows the trade-off between an individual's consumption in the present (on the horizontal axis) and consumption in the future (on the vertical axis). The line representing the possible combinations slopes downwards. The economist states, 'The trade-off is 1.1 units of future consumption for every 1 unit of present consumption.' A mathematician looking at the same graph calculates the slope of the line as -1.1. Which of the following statements best explains this difference in description?
An individual is analyzing their options for consumption today (represented on the horizontal axis) versus consumption in the future (represented on the vertical axis). They can choose between two bundles: Bundle A (50 units of consumption today, 150 units in the future) and Bundle B (100 units of consumption today, 90 units in the future). Match each term below with its correct numerical value based on this scenario.
Evaluating an Economic Reporting Convention
An individual's budget constraint for present and future consumption is represented by a downward-sloping line. If they give up 20 units of present consumption, they can gain 22 units of future consumption. According to the standard economic convention for describing this trade-off, for every one unit of present consumption foregone, the individual gains ______ units of future consumption.
Correcting a Flawed Economic Analysis
The Common 'Price' of Shifting Consumption: Comparing Slopes for Borrowers and Lenders