The optimal trade-off between current consumption goods and future consumption goods is expressed as

Question

Quizplus · Accepted Answer

The optimal trade-off between current consumption goods and future consumption goods is expressed by the intertemporal marginal rate of substitution, which is the ratio of the marginal utility of present consumption to the marginal utility of future consumption. In a world without uncertainty, this ratio is equal to the discount rate, which is represented by the lowercase letter r. Therefore, the correct formula for the optimal trade-off is MRSC,C' = 1 + r. Choice B is the only answer that matches this formula.

The Optimal Trade-Off Between Current Consumption Goods and Future Consumption