Simplifying Assumption in Lending Models: Guaranteed Repayment

Simplifying Assumption in Lending Models: Exogenous Interest Rate

Simplifying Assumption in Lending Models: Access to Credit without Wealth

Consider an individual's decision between 'consumption now' and 'consumption later'. Their initial situation before any financial transaction is represented by an endowment point. They can choose any combination of consumption now and later along a downward-sloping feasible frontier that passes through this endowment point. If this individual's optimal choice results in a level of 'consumption now' that is greater than their initial endowment for 'consumption now', which of the following statements must be true?

Comparing Intertemporal Choices

Analyzing the Impact of an Interest Rate Change on a Borrower

An individual is deciding how much to consume now versus in the future. In the graphical model representing this choice, the slope of the line representing all possible consumption combinations they can achieve through borrowing or lending is determined by their personal degree of patience.

An individual is deciding how to allocate their consumption between the present and the future. Their options are represented by a downward-sloping feasible frontier, and their preferences are represented by indifference curves. At their current consumption plan, which is a point on the feasible frontier, they are willing to give up 1.05 units of future consumption to gain 1 unit of present consumption. The market allows them to exchange 1 unit of present consumption for 1.10 units of future consumption by saving. To reach a higher level of satisfaction, what should this individual do?

The Graphical Determination of Borrowing and Lending

An individual makes a choice between consumption today and consumption in the future, constrained by their initial resources and the market interest rate. Match each economic description below to the corresponding feature of the graphical model that represents this choice.

Inferring Preferences from Intertemporal Choice

Comparing Borrower and Saver Preferences

Assessing the Potential for a Loan

Interest Rate as the Price of Present Consumption

Applying the Constrained Choice Framework to Intertemporal Decisions

Figure 9.3: Comparing Julia's Feasible Frontiers at 10% and 78% Interest Rates

Simplifying Assumption in Lending Models: Borrowing without Initial Wealth

How Real Credit Markets Deviate from Simplified Models