2nd Year Macroeconomics Chapter 9

Consumer Current Period Budget Constraint

c = y - t - s

Consumer Future-Period Budget Constraint

c’ = y’ - t’ + (1 + r)s

Consumer Lifetime Budget Constraint

c + c’/(1 + r) = y - t + (y’ - t’)/(1 + r)

Consumer “PV” Lifetime Budget Constraint

c + c’/(1 + r) = y + y’/(1 + r) - t - t’/(1 + r)

Wealth Formula (1)

c + c’/(1 + r)

Wealth Formula (2)

y - t + (y’ + t’)/(1 + r)

Simplified Consumer Lifetime Budget Constraint (Slope-Int Form)

c’ = -(1 + r)c + (1 + r)we

Credit Market Optimal Consumption Bundle

MRS_l,C = 1 + r

Perfect Complements Credit Market Ratio

c’ = ac

Perfect Complements Simplified Consumer Lifetime Budget Constraint (Slope-Int Form)

c’ = [(a)(we)(1 + r)] / (1 + r + a)

Government Current Period Budget Constraint

G = T + B

Government Future Period Budget Constraint

G’ = (1 + r)B = T’

Government’s “PV” Lifetime Budget Constraint

G + G’/(1 + r) = T + T’/(1 + r)

Credit Market Equilibrium Condition

S^P = B

Credit Market Current Shared Tax Burden

T = Nt

Credit Market Future Shared Tax Burden

T’ = Nt’