1
Q
What is assymetric info?
A
Secrecy between people
2
Q
What is limited commitment?
A
People don’t keep promises
3
Q
How do we construct a budget constraint? Include tax:
A
Consumption in all periods has to be equal to income
c + c’/(1+r) = (y-t) + (y’-t’)/(1+r)
R is different depending on if you are a lender or borrower
The rates for borrowers > rates for lenders because banks hedge ris against people with bad credit
4
Q
What is Ricardian equivalence?
A
Theory suggesting that when a government borrows money to finance increased spending, this does not boost overall economic demand.
People anticipate increase in taxation by saving more
5
Q
A
EC1B3
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