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Thus when the interest rate rises, the vertical intercept shifts up, and the horizontal intercept shifts in, as the budget line pivots clockwise around her endowment point. On the other hand, a decrease in the interest rate would have the opposite effect: it would make borrowers better off, and savers worse off.
Intertemporal Government Budget Constraint. Tax and spending decisions at different dates are linked. Although governments can borrow or lend in a given year, a government’s total spending over time must be matched with revenues. When a government runs a deficit, it typically borrows to finance it.
Finally, it is as if the household faces a single budget constraint, which is given above by q0c0 + q1c1 = q0x0. This constraint, which summarizes the constraints put on the dynamic path of consumption from the combination of the two per-period constraints, is customarily called the \intertemporal budget constraint".
20.8 Summary. Things you should know. Intertemporal Budget Constraint. Good 1 ( c_1 c1. ) is consumption now (or “period 1,” or “year 1,” or “this year,” or “today”); good 2 ( c_2 c2. ) is consumption in the future (or “period 2”, or “year 2,” or “next year,” or “tomorrow”).
Quick Reference. In a dynamic economy this is the constraint on the flows of spending and income, and the stock of wealth, over two or more periods. For example, a consumer's intertemporal budget constraint in an economy with perfect credit markets requires that the present value of their lifetime consumption does not exceed the present value ...
This equation is known as the intertemporal budget constraint —that is, the budget constraint that allows for borrowing or lending. It has two immediate consequences. First, 1 + r is the price of Period 2 consumption in terms of Period 1 consumption. Thus, the interest rate gives the relative prices.
Aug 18, 2022 · Budget constraint ( 1.1) indicates that, at the initial time period, the agent is endowed with an amount of capital plus the labor income earned at that first date.
