Find out the budget constraint, Microeconomics

Assignment Help:

1. Suppose that there is a credit market imperfection because of asymmetric information. In the economy, there are N consumers. A fraction b of consumers consists of lenders, who each receive an endowment of y units of the consumption good in the current period and 0 units in the future period. A fraction of borrowers are good borrowers, who each receive an endowment of 0 units in the current period and y units in the future period. Finally, the left consumers are bad borrowers, who receive 0 units of endowment in both periods. Banks cannot distinguish between good and bad borrowers. The government sets G and G' as government spending, and each consumer is asked to pay a lump-sum tax of t in the current period and t' in the future period. The government also cannot distinguish between good and bad borrowers, but as with banks can observe endowments. The lending rate is r.

a. Write down the government's budget constraint.

b. Find out the budget constraints of good borrowers, bad borrowers, and lenders respectively.

c. Suppose that the government decrease t and increase t' in such a way that the government budget constraint holds. Does this have any effect on each consumer's decisions about how much to consume in each period and how much to save? Explain.

d. Does Ricardian equivalence hold in the economy? Explain why or why not?


Related Discussions:- Find out the budget constraint

Aspects of basic analytical frameworks in modern economics, What are the ba...

What are the basic analytical frameworks of modern economics? The fundamental analytical framework of modern economics: The fundamental analytical framework for an econom

All chapter, sir explain me about all things of microeconomics

sir explain me about all things of microeconomics

Hi, I have an assignment need to be done

I have an assignment need to be done

Survey methods, Survey Methods: The most direct method of forecasting dema...

Survey Methods: The most direct method of forecasting demand in the short run is survey method. Surveys are conducted to collect information about future purchase plans of the

#theory of consumer., Ask question #what is an indifference curveMinimum 10...

Ask question #what is an indifference curveMinimum 100 words accepted#

Banking, what is fractional reserve and how does it affect money supply?

what is fractional reserve and how does it affect money supply?

Production, boumal''s single product modelwith out advertisment

boumal''s single product modelwith out advertisment

Financial economies, Financial Economies: These are benefits obtained...

Financial Economies: These are benefits obtained by large firms as a result of contracting credit from financial institutions at lower interest rates than smaller firms. The

What main features are found in oligopolies, What main features are found i...

What main features are found in oligopolies? Assumptions of oligopoly Four or five firm concentration ratio Frequently there are benefits of scale to be had Merg

Consumer preferences, Consumer Preferences Indifference curves represen...

Consumer Preferences Indifference curves represent all the combinations of market baskets which provide the same level of contentment to the person. Consumer Preferences

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd