In equilibrium:
A)everyone with a high rate of time preference borrows.
B)everyone with a low rate of time preference borrows.
C)everyone has the same marginal value of current consumption.
D)everyone has the same rate of time preference.

Question

Quizplus · Accepted Answer

In equilibrium, everyone has the same marginal value of current consumption. This means that they place the same value on consuming goods today as they do on consuming goods tomorrow. Therefore, those with a lower rate of time preference will save more and those with a higher rate of time preference will borrow more until everyone's marginal value of consumption is equal. So, neither A nor B is correct as it cannot be assumed that only those with high or low rates of time preference will borrow. D is also incorrect as it assumes that everyone has the same rate of time preference, which is not necessary for equilibrium.

In Equilibrium