Exam 9: A Two-Period Model: The Consumption-Savings Decision and Credit Markets

We collapse the consumer's current-period and future-period budget constraints into a single lifetime budget constraint by

In the absence of a financial system,the two-period model without taxes predicts that

The endowment point is the consumption bundle in which

A good proxy for the flow of consumption services would be

Ricardian equivalence implies

The property of diminishing marginal rate of substitution follows from the property that the indifference curves are

For a household in a (c,c')graph,the optimal consumption bundle is

To assure a well-defined solution to the consumers' intertemporal choice problems,we must assume that consumers' preferences exhibit the properties that

We limit ourselves to two periods in the intertemporal model of the business cycle because

For the consumer to be at an optimum,it must be the case that

The Ricardian equivalence theorem implies that

The idea that a permanent increase in income causes a larger increase in consumption than a temporary change in income is called the

An important reason why Ricardian equivalence may fail is if

The substitution effect of a change in the real interest rate is an example of

In a two-period model,government spending is financed through

At the endowment point,we have the property that

The desire to smooth consumption is reflected in

The consumer's lifetime budget constraint states that

If current income increases as much as future income decreases

The endowment point is the consumption bundle in which