Friday, April 1, 2011

Shifting Income over Time

The video develops the notation and the model for a two period choice problem where the periods denote the present and the future. It considers the problem for both a borrower and a saver and by working through the algebra shows that an increase in the interest rate is like an increase in the price of present consumption for a borrower but is like a fall in the price of future consumption for a saver.

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