A consumer who can borrow and lend at the same interest rate should prefer an endowment with a higher present value to an endowment with a lower present value, no matter how he plans to allocate consumption over the course of his life.

Question

Quizplus · Accepted Answer

If the consumer can borrow and lend at the same interest rate, then the time value of money is equivalent for both borrowing and lending. Therefore, the consumer's preference is solely based on the present value of the endowment, regardless of how they allocate consumption over time.

A Consumer Who Can Borrow and Lend at the Same