Question

In what sense is there a trade off between current consumption and future consumption?

In what sense is there a trade off between current consumption and future consumption?

Homework Answers

Answer #1

From an economy's point of view there is a trade off between current consumption and future consumption (capital goods) in a way that more we invest in capital goods today, the greater the amount of consumer goods we can produce in the future and smaller the amount of consumer goods we can produce today.

From an individual's point of view, an individual has a limited income at his disposal at the end of each period, he has the option to either use the amount for consumption today or invest/ save it for future consumption. Any amount used for consumption today is a trade off against the future consumption that he can do from that amount being saved or invested today.

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