The Friedman rule is optimal because which of the following relationships holds in equilibrium?

Question

Quizplus · Accepted Answer

The Friedman rule suggests that nominal interest rates should be zero so that real interest rates match the social rate of time preference. In other words, the opportunity cost of consuming today rather than saving for tomorrow should be equal to the discount rate at which future generations are valued. This implies that the marginal rate of substitution between consumption and leisure is equal to the marginal rate of transformation between consumption and leisure adjusted for the interest rate, i.e., MRS_1,c = $ \frac{MRT_{1, c}}{1+R} $. Thus, option B is the correct choice.

The Friedman Rule Is Optimal Because Which of the Following MRT1,c1+R \frac{MRT_{1, c}}{1+R} 1+RMRT1,c​​

The Friedman Rule Is Optimal Because Which of the Following $\frac{MRT_{1, c}}{1+R}$