Flashcards
Irving Fisher and Intertemporal choice
Cards in this deck (12)
- 1What 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 - 2What 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
- 3List 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) - 4In which period is saving found in Irving?period 1
There's no saving in period 2 - 5Which period should we take into consideration when deriving the budget constraint?Period 2
- 6Which equation should you start with when begining the derivation?C2 = Y2 + (1+r)S
- 7What 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.
- 8When 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 - 9What should you explain in your diagramThe y-intercept and the x-intercept
and then borrowing and saving - 10What is the slope of the budget line in Irving?-(1+r)
- 11Difference betwenn Keynes and Fisher?Keynes- Current consumption depends only on current income
Fisher- Current consumption depends only on the present value of lifetime income - 12What can you say about the timing of income in Fisher?It is irrelevant because consumer can borrow or lend across periods.