Ken Downing Behaves According to Irving Fisher's Two-Period Model

Essay

Ken Downing behaves according to Irving Fisher's two-period model. Consumption in both periods is a normal good for Ken. Ken is initially a saver in period one. Ken loses his job in period one. His first-period income becomes his unemployment benefits, which are much lower than his period-one income had been. His expected income in period two is unchanged. Illustrate graphically how this job loss affects Ken's consumption in periods one and two.