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According to the Fisher model, what are the key determinants of the real rate of interest? Suppose that the average rate of time preference among
According to the Fisher model, what are the key determinants of the real rate of interest? Suppose that the average rate of time preference among economic units increases (i.e. increased preference for current consumption). Use the Fisher model to illustrate how this change would affect the interest rate and the amount of investment in a closed economy. What would happen to current vs. future production (and consumption)?
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