Consider a two-year period where a consumer has an income of $10,000 in year 1 and $8,000 in year 2.The consumer can borrow or lend at a rate of 10 percent.If the consumer decides to save $1,000 in year 1,it means:
A)his consumption will be equal in both years.
B)he will have a higher consumption in year 2 than in year 1.
C)he considers consumption in year 1 as an inferior good.
D)the cost of future consumption will increase.

Question

Quizplus · Accepted Answer

By saving $1,000 in year 1 and earning interest at a rate of 10 percent, the consumer will have $1,100 available for consumption in year 2 (assuming the entire amount is saved and not spent in year 1). Therefore, the consumer will have a higher consumption in year 2 than in year 1.

Consider a Two-Year Period Where a Consumer Has an Income