2nd Year Macroeconomics Chapter 10

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13 Terms

1
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Credit Market Interest Rate Differences

Private Borrow Rate > Private Lender Rate = Public Borrow/Lend Rate

2
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Good Borrowers (Never Default)

a

3
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Bad Borrowers (Always Default)

1 - a

4
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Bank Loan Profit Average

π = aL(1+r2) - L(1+r1) = L[a(1+r2) – (1+r1)]

5
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Loan Rate Formula (zero profits)

r2 = (1 + r1)/a - 1

6
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Default Premium

r2 - r1 = x

7
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Collateralized Consumer Lifetime Budget Constraint

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

8
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Collateral Constraint (1)

-s(1 + r) =< pH

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Collateral Constraint (2)

c =< y - t + (pH)/(1 + r)

10
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Population Growth

N’ = (1 + n)N

11
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Pay-as-you-go Benefits Constraint

n > r

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Government Balance Budget

Nb = N’t

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Pay-as-you-go Tax to Benefits Relationship

t = b/(1 + n)