5308186
Description
Flashcards by ASHVEEN NUNKOO, updated more than 1 year ago
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Created by ASHVEEN NUNKOO
over 9 years ago
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| Question | Answer |
| What are the assumptions in the Irving Fisher Intertemporal choice? | 1. Consumers are forward looking 2. Consumer chooses consumption in the present and future to maximise lifetime consumption |
| What does the consumer intertemporal budget constraint represents in the Irving Fisher? | Represents the measure of the total resources available for both present and future consumption |
| List all the notations used in the Irving Fisher and Intertemporal choice. | 1. Period 1 = present 2. Period 2 = future 3. C1 = consumption in period 1 4. C2 = consumption in period 2 5. Y1 = Income i period 1 6. Y2 = Income in period 2 7. r = real interest rate 8. S = Y1-C1 ( saving in period 1) |
| In which period is saving found in Irving? | period 1 There's no saving in period 2 |
| Which period should we take into consideration when deriving the budget constraint? | Period 2 |
| Which equation should you start with when begining the derivation? | C2 = Y2 + (1+r)S |
| What do you understand by your equation cited above? | My consumption in period 2 should equals my income in period 2 plus my saving in period 1. |
| When derving you will finally come to this C2/(1+r) + C1 = Y2/(1+r) + Y1 What does the left and right side of this equation represents respectively? | Left side= Present value of lifetime consumption Right side= Present value of lifetime income |
| What should you explain in your diagram | The y-intercept and the x-intercept and then borrowing and saving |
| What is the slope of the budget line in Irving? | -(1+r) |
| Difference betwenn Keynes and Fisher? | Keynes- Current consumption depends only on current income Fisher- Current consumption depends only on the present value of lifetime income |
| What can you say about the timing of income in Fisher? | It is irrelevant because consumer can borrow or lend across periods. |
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