The intertemporal budget constraint is defined as:
A) V = DP + DF/(1 + r)
B) DP + DF(1 + r) = QP + QF(1 + r)
C) DP + DF/(1 + r) = QP + QF/(1 + r)
D) DF + DP/(1 + r) = QF + QP/(1 + r)
E) V = QP + QF/(1 + r)

Question

Quizplus · Accepted Answer

The intertemporal budget constraint refers to the idea that a consumer's spending choices should be based on their current income as well as their future income or assets. It is usually represented by balancing the consumer's current spending with their expected future spending. Option C is the correct formula, as it balances the sum of current consumption (DP + DF/(1+r)) with the sum of future consumption (QP + QF/(1+r)).

The Intertemporal Budget Constraint Is Defined As