Rate Changes, Borrowers, and Lenders

The pivot around the endowment

Lenders get richer, borrowers poorer

A Cobb-Douglas borrower worked out

Reading real-world positions

When the interest rate changes, which point on the intertemporal budget stays fixed?

The interest rate rises. What are the income effects for a lender and a borrower?

In the worked example, r rises from 10 to 21 percent and c1 falls from 75 to 70. What happened to borrowing?

A central bank raises rates to discourage current spending. Which group responds most reliably?

With endowment (40, 121), compute present value at r equals 21 percent, and write the number.

Same consumer with Cobb-Douglas patience, compute c1 at r equals 21 percent, and write the number.

With endowment (40, 121) and Cobb-Douglas patience at r of 10 percent, where does the consumer start?

At r of 21 percent, the same consumer's present value is 140 and c1 falls to 70. What is c2?

After r rises to 21 percent, what does the old bundle (75, 82.5) cost in present value, and what follows?

A pension fund receives contributions now and owes payments decades out. Which side of the loanable funds market is it on?

With endowment (40, 121), compute the present value at r of 10 percent, and write the number.

With endowment (40, 121), compute the present value at a rate of 5 percent, and write the number.