ACCPT1 Flashcards
1
Q
What is the budget constraint for the intertemporal model?
A
(E1-c1)(1+r)+E2-c2=0
2
Q
What happens when the interest rate increases?
A
The budget curve pivots around the endowment point, clockwise. This is because the cost of borrowing is higher and the reward to saving is lower.
3
Q
How do we solve the MRS?
A
MU1/MU2 = 1+r… then can solve for c1 and c2.
