What is intertemporal trade in economics?
Intertemporal choice is an economic term describing how current decisions affect what options become available in the future. Theoretically, by not consuming today, consumption levels could increase significantly in the future, and vice versa.
What is the meaning of intertemporal trade?
In the intertemporal trade model, you have two countries in two time periods. One country may simply have consumers who prefer current consumption over future consumption, and so are unwilling to save as much as another country. Either way, if the autarky r differs then there are potential gains from trade.
Is there a trade-off between current consumption and future consumption?
Decision involves a tradeoff between current and future consumption. By saving, a consumer gives up consumption in exchange for assets in the present to consume more in the future. By borrowing, a consumer gains more current consumption sacrificing future consumption when the loan is repaid.
Why is consumption smooth?
Consumption smoothing allows them to control their spending so that they can meet their various obligations when income is fluctuating. As an economics concept, consumption smoothing captures the desire of people to have a stable path of consumption.
How does future income affect current consumption?
The paper projects future income for a panel of households and finds that consumption is closely related to projected current income, but unrelated to predictable changes in income. However, future income uncertainty has an important effect: consumers facing greater income uncertainty consume less.
What is intertemporal substitution of Labour?
The intertemporal substitution model of labor supply has been based on closed economy models. It derives the long run labor supply as a function of the real wage, real interest rate and real exchange rate from a standard open economy optimizing representative agent model.
What is Keynesian consumption function?
The consumption function, or Keynesian consumption function, is an economic formula that represents the functional relationship between total consumption and gross national income.
At what level of income saving becomes zero?
At OY0 level of income, (since income equals consumption) saving is zero. That is why saving line at that level of income cuts the horizontal axis. To the left of OY0 level of income, as saving is negative, SS’ line lies below the horizontal line.