In Irving Fisher's Two-Period Model, the Substitution Effect of an Increase

question 38

Multiple Choice

In Irving Fisher's two-period model, the substitution effect of an increase in the interest rate in the first period, for a saver, is the:

• A) decrease in the relative price of second-period consumption.
• B) additional income earned on first-period saving.
• C) decrease in the relative price of first-period consumption.
• D) additional income earned on second-period saving.