Macroeconomics BBE Unit 1 Lesson 3 Fisher s Inter Temporal Budget Constraint Consumption

This lesson discusses the Irving Fisher and Intertemporal Consumption Function. This is for all the students studying Macroeconomics and specially for 4th semester BBE students of University of Delhi.

Temporal means related to Time.

Inter-temporal means decision in one time period affecting the options availability in future.

Theoretically, in case of consumption: By not consuming today, consumption levels could increase significantly in the future and vice-versa.

Keynes’ consumption theory relates current consumption with current level of income.

Fisher’s intertemporal choice means rational forward looking consumers make intertemporal choice that is the decision to consume and save considers both present and future.

So, there is a trade-off between consumption in the present and consumption in future, and hence in making this trade-off, the consumers should or must look ahead to the income they expect to receive in the future and thus the consumption of goods and services they hope to afford in future.