Exam 18: Consumption and Saving

Intertemporal Budget Constraint -Given the table above, suppose consumption in period two is $40,000. Then, the interest rate rises to five percent, and period-two consumption does not change. We may infer that ________.

When the borrowing constraint is binding, ________.

Assuming a real interest rate of four percent, which of these causes the largest increase in the present value of lifetime resources?

Current estimates of the marginal propensity to consume out of wealth are in the neighborhood of ________.

During the 2007-2009 financial crisis, many households found themselves with negative wealth (debts to repay) and a binding borrowing constraint. Describe the income and substitution effects of a decrease in the real interest rate.

Intertemporal Budget Constraint -Referring to the table above, if consumption in period one is $20,000, then consumption in period two cannot be greater than ________.