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8 Aug 2019

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. If the real interest rate is positive and if p1=p2, the consumer will

consume only in period 1.

consume more in period 1 than in period 2 if income elasticity exceeds 1, otherwise consume more in period 2 than in period 1.

consume only in period 2.

consume equal amounts in each period.

equalize expenditures but not consumption in the two periods.

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