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Question: 1. Explain the analogy between the intertemporal optimum of the consumer (choice between current consumption C0and future consumption C1) and the optimum of the consumer at a moment of time (choice between consumption of commodity X and commodityY).

2. Which is correct, and explain:

a. The annual rate of interest is the ratio P0/P1,the price of a current consumption claim divided by the price of a consumption claim dated one year in the future.

b. The annual rate of interest is the premium on the value of current relative to 1-year future claims, as given by the expression (P0/P1)-1.

Microeconomics, Economics

  • Category:- Microeconomics
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