Answer to Question #5139 in Macroeconomics for kristen
An employer offers his or her employee the option of shifting x units of income from next year to this year. That is, the option is to reduce income next year by x units and increase income this year by x units.
a) Would the employee take this option (use a diagram)?
b) Determine, using a diagram, how this shift in income will affect consumption this year and next year and saving this year. Explain your results.
a) The employee would take this option because he or she will receive the same amount of money but faster. b) This shift in income will increase consumption and saving this year and decrease consumption and saving next year, because the employee will have more money to spend and save this year, but less money the next year.