Why does a consumer, who wants to consume at a high time preference not really care...

Why does a consumer, who wants to consume at a high time preference not really care about where interest rates are?

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Expert Solution

In economics, patience is measured as the ‘rate of time preference’, which is a function reflecting the amount of present consumption one would be willing to forego in order to increase future consumption by a certain amount.

Time Preference refers to inclination of a consumer towards current consumption (expenditure) over future consumption, or vice versa.

What may induce a consumer to delay consumption is called Rate of Time Preference amount of money (expressed as a proportion of the consumer's current income) that will compensate him or her for forgoing current consumption.

This rate corresponds with the market interest rate and depends (among other factors) on the consumer's expectations of the future income.

If the future income is expected to be higher than the consumer's current income, he or she will have a high rate of time preference; then he or she does not really care about where interest rates are.

Rahul Sunny answered 1 year ago

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