The intertemporal tradeoff between present and future consumption is measured by the
A) real interest rate.
B) inflation rate.
C) nominal interest rate.
D) terms of trade.
E) rate of economic growth.

Question

Quizplus · Accepted Answer

The intertemporal tradeoff between present and future consumption involves making a choice about how much to consume now versus saving for future consumption. The real interest rate reflects the opportunity cost of consuming now, as it represents the increase in purchasing power that could result from delaying consumption and saving instead. Therefore, A is the best choice. Inflation rate (B), nominal interest rate (C), terms of trade (D), and rate of economic growth (E) may also affect intertemporal choices, but they are not specifically measuring the tradeoff between present and future consumption.

The Intertemporal Tradeoff Between Present and Future Consumption Is Measured