If a household consumes one less unit in period 1, they can consume:
A)on more unit in period two.
B)(1 + i) more units in period two.
C)one less unit in period two.
D)no more in period two.

Question

Quizplus · Accepted Answer

When a household saves by consuming one less unit in period 1, it can consume (1 + i) more units in period 2, where i is the interest rate. This is because the saved unit can earn interest over time, increasing the total amount available for consumption in the next period.

If a Household Consumes One Less Unit in Period 1