Addendum to Ch 3and4 Econ 281 Fall2010_Borrowing and Lending

Addendum to Ch 3and4 Econ 281 Fall2010_Borrowing and...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Example:  Borrowing and Lending Two composite goods: C 1   is what the consumer consumes of the first  period composite good (spending this year) C 2   is what the consumer consumes of the  second period composite good (spending next  year) C 1 , spending this year ($) C 2 , spending next year ($)
Background image of page 2
C 1 , spending this year ($) C 2 , spending next year ($) I 1 I 2 I 1 +I 2 /(1+r) I 2 + I 1 (1+r) A I 1   is the consumer income for the first period I 2   is the consumer income for the second period r  is the Bank interest rate for borrowing and  lending Slope of budget line is -(1+r)
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
C 1 , spending this year ($) C 2 , spending next year ($) I 1 I 2 C 1B C 2B I 1 +I 2 /(1+r) I 2 + I 1 (1+r) B A C 1B  –I 1  = How much the  consumer borrows from  the bank today  (C 1B  –I 1 ) (1+r) = How  much the consumer  has  to give back to the bank  tomorrow
Background image of page 4
C 1 , spending this year ($) C 2 , spending next year ($)
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 10/04/2011 for the course ECON 281 taught by Professor Marchand during the Spring '10 term at University of Alberta.

Page1 / 12

Addendum to Ch 3and4 Econ 281 Fall2010_Borrowing and...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online