Suppose initially there are no opportunities for intertemporal trade in 301land and that these opportunities are subsequently introduced. Which of the following statements makes the most accurate comparison between an economic agents opportunities to shift consumption across time before and after the introduction of opportunities for intertemporal trade?
A. In the absence of intertemporal trade, economic agents in 301land can transform units of current consumption into units of future consumption at a rate of one for one but are unable to transform future consumption into current consumption. However, the introduction of opportunities for intertemporal trade allows households to transform units of current consumption into units of future consumption at a rate of 1 for 1/(1+r) and to transform units of future consumption into units of current consumption at a rate of 1 for (1+r).
B. In the absence of intertemporal trade, economic agents in 301land can transform units of current consumption into units of future consumption at a rate of one for one but are unable to transform future consumption into current consumption. However, the introduction of opportunities for intertemporal trade allows households to transform units of current consumption into units of future consumption at a rate of 1 for (1+r) and to transform units of future consumption into units of current consumption at a rate of 1 for 1/(1+r).
C. In the absence of intertemporal trade, economic agents in 301land can transform units of current consumption into units of future consumption at a rate of one for one and transform units of future consumption into units of current consumption at a rate of one for one. However, the introduction of opportunities for intertemporal trade allows households to transform units of current consumption into units of future consumption at a rate of 1 for (1+r) and to transform units of future consumption into units of current consumption at a rate of 1 for 1/(1+r).
D. In the absence of intertemporal trade, economic agents in 301land can transform units of current consumption into units of future consumption at a rate of one for one and transform units of future consumption into units of current consumption at a rate of one for one. However, the introduction of opportunities for intertemporal trade allows households to transform units of current consumption into units of future consumption at a rate of 1 for 1/(1+r) and to transform units of future consumption into units of current consumption at a rate of 1 for (1+r).
