If a consumer views a unit of consumption in period 1 as a perfect substitute (o

Question

If a consumer views a unit of consumption in period 1 as a perfect substitute (one-for-one)

for a unit of consumption in period 2 and if the real interest rate is positive, the consumer will: (explain or show work)

(a) consume only in period 1.

(b) consume only in period 2.

(c) consume equal amounts in each period.

(d) consume more in period 1 than in period 2 if income elasticity exceeds 1, else would consume more in

period 2 than in period 1.

(e) equalize expenditures but not consumption in the two periods.

Explanation / Answer

consume equal amounts in each period.

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