Suppose a consumer who has a marginal rate of substitution of current consumption for future consumption...

Suppose a consumer who has a marginal rate of substitution of current consumption for future consumption that is a constant, b. Determine how this consumer’s choice of current consumption, future consumption, and savings depends on the market real interest rate r, and taxes and income in the current and future periods. Show this in diagrams.

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- In financial aspects, the marginal rate of substitution (MRS) is the measure of a decent that a customer is eager to expend corresponding to another great, as long as the new great is similarly fulfilling. It's utilized in lack of interest hypothesis to investigate shopper conduct.

- MRS financial aspects is utilized to dissect purchaser practices for an assortment of purposes. The marginal rate of substitution is a financial matters term that alludes to the measure of one great that is substitutable for another.

- The marginal rate of substitution is constant moreover. One can acquire this if, for one more unit of Y, just a single unit of X is surrendered. It is constant for immaculate substitution.

- For the consumer if the market real interest rate are falling taxes are falling and income is rising, his consumption will increase both for current and future period , similarly if the interest rates are rising , taxes are rising and income is falling consumer will like to consume less and save more this will lead to reduced consumption of the basket of the goods.

- This can be depicted as follows , with higher income the indifference curve will move right ward .

Rahul Sunny answered 2 years ago

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