A consumption function based on the Fisher two-period model is consistent with the Keynesian consumption function for consumers who:
A) would like to borrow, but cannot.
B) are initially borrowers when future income increases.
C) are initially savers when future income increases.
D) are initially borrowers when the interest rate increases.

Question

Quizplus · Accepted Answer

The Fisher two-period model suggests that consumers decide their consumption based on their lifetime income and interest rates, aiming to smooth consumption over time. The Keynesian consumption function posits that current income is the primary determinant of consumption. Option A is consistent with the Keynesian view because consumers who would like to borrow but cannot are forced to rely solely on their current income for consumption, aligning with the Keynesian emphasis on the impact of current income on consumption.

A Consumption Function Based on the Fisher Two-Period Model Is