The intertemporal substitution effect of a change in the price level results from a
A) change in the price of current goods relative to future goods.
B) change in the purchasing power of wealth.
C) change in the price of foreign goods relative to domestic goods.
D) Both answers B and C are correct.

Question

Quizplus · Accepted Answer

The intertemporal substitution effect refers to how consumers change their consumption of goods over time in response to changes in the relative prices of goods at different points in time. Specifically, it involves a change in the price of current goods relative to future goods, encouraging consumers to substitute between consuming now and consuming later based on which is more cost-effective.

The Intertemporal Substitution Effect of a Change in the Price