Fisher’s two-period problem opens the chapter. It exposes the logic of intertemporal choice in the simplest setting that contains anything interesting, one in which a budget constraint trades current against future consumption and a first-order condition equates the marginal rate of substitution between them to the interest factor.
Extending that problem in one direction gives the Diamond overlapping generations model, which lets us ask how public pensions and government debt shift resources across cohorts. Extending Fisher’s problem in the other direction, toward many periods and uncertain income, gives the perfect foresight CRRA consumption function and then the random walk result. Admitting a precautionary motive yields buffer stock behavior, which reconciles the theory with observed age profiles of consumption and income (the hump the perfect foresight model cannot produce).
The chapter closes with the leading departures from that benchmark: habit formation, durable goods, time inconsistent discounting, and expectations that respond only sluggishly to news.