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

Assignment, Differentiate between oscillation and damp cobweb model

Differentiate between oscillation and damp cobweb model

Determine the economic productivity level, Determine the economic productiv...

Determine the economic productivity level Up until 1500 as best we can tell there had been next to no growth in output per worker for the average human for millennia. Even in 1

Marginal utility theory, discuss whether marginal utility is a realistic pi...

discuss whether marginal utility is a realistic piece of economy analysis in a consumer demand

How many wokers should the firm hire(need help now!!plzz), Labor Total Out...

Labor Total Output 1 30 2 50 3 60 4 75 5 80 a) If the price of the firm’s output is $12 per unit and the wage rate is $100 per worker, how many workers should the firm choose to

Average labor productivity, can average labor productivity fall even though...

can average labor productivity fall even though total output is rising

Impact of economic reforms on labour, Impact of Economic Reforms on Labour:...

Impact of Economic Reforms on Labour: It would be of interest to study the industrial relations scenario in the pre-reform and post-reform period. Data provided in table 8.4 r

What is deflation, What is Deflation?  Deflation in economics refers to...

What is Deflation?  Deflation in economics refers to reduce in the general price level, i.e. the nominal cost of goods and services as well as wages reduce. As, it is an opposi

Market supply and increase in supply, Market supply and Increase in supply:...

Market supply and Increase in supply: Market supply is the total quantity of a product that all firms in an industry are willing to offer for sale at a given market price an

Labour economics, Consider the following flow (in thousands of people) betw...

Consider the following flow (in thousands of people) between the various labour market states in a particular month:

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