In Irving Fisher's two-period model, if consumption in both periods is a normal good, then an increase in income in period two:
A) increases consumption in period one only.
B) increases consumption in period two only.
C) increases consumption in both periods.
D) does not increase consumption in either period.

Question

Quizplus · Accepted Answer

In the two-period model, if consumption in both periods is a normal good, then an increase in income in period two will increase the budget for consumption in period two and also increase the resource base for the individual, allowing for greater consumption in period one as well. Therefore, consumption increases in both periods.

In Irving Fisher's Two-Period Model, If Consumption in Both Periods