Question
In: Economics
Suppose that there is limited commitment in the credit market, but lenders are uncertain about the...
Suppose that there is limited commitment in the credit market, but lenders are uncertain about the value of collateral. Each consumer has a quantity of collateral H, but from the point of view of the lender, there is a probability a that the collateral will be worth p in the future period, and probability (1-a) that the collateral will be worthless in the future period. Suppose that all consumers are identical.
a) Determine the collateral constraint for the consumer, and show the consumer’s lifetime budget constraint in a diagram.
b) How will a decrease in a affect the consumer’s consumption and savings in the current period, and consumption in the future period? Explain your results.
Solutions
B)
Rahul Sunny answered 2 years agoRelated Solutions
In the credit market model with limited commitment, suppose that a consumer's collateral constraint is binding,...
In the credit market model with limited commitment, suppose that
a consumer's collateral constraint is binding, and suppose that the
consumer's current taxes fall, with an increase in future taxes
that leaves lifetime wealth unchanged for the consumer. How does
this affect the consumer's behavior? Explain.
Do you think it is right that lenders aggressively market credit lines to certain types of...
Do you think it is right that lenders aggressively market credit
lines to certain types of consumers? (e.g. college students on
their campuses, retirees on fixed incomes, people who have recently
filed bankruptcy, people who might not understand the credit terms
due to limitations of language, education and/or health?)
How have changes in expectations, attitudes and practices on the
part of lenders and consumers changed over the last two
generations?
On 1 June2020, Purchase Limited enters into a firm commitment Supply Limited to buy USD 100,000...
On 1 June2020, Purchase Limited enters into a firm commitment
Supply Limited to buy USD 100,000 of
inventory. On 1 July 2020, the Purchase Limited enters into a
hedging arrangement which meets the hedge
accounting criteria stipulated by the accounting standards
(Australian Accounting Standards Board (AASB) 9).
Purchase Limited has designated the firm commitment hedging
arrangement as a fair value hedge. On 1 August
2020, Supply Limited transfers the inventory to Purchase Limited,
and on that date, the Purchase Limited...
On 1 June2020, Purchase Limited enters into a firm commitment Supply Limited to buy USD 100,000...
On 1 June2020, Purchase Limited enters into a firm commitment
Supply Limited to buy USD 100,000 of inventory. On 1 July 2020, the
Purchase Limited enters into a hedging arrangement which meets the
hedge accounting criteria stipulated by the accounting standards
(Australian Accounting Standards Board (AASB) 9). Purchase Limited
has designated the firm commitment hedging arrangement as a fair
value hedge. On 1 August 2020, Supply Limited transfers the
inventory to Purchase Limited, and on that date, the Purchase
Limited...
1. Suppose the government restricts foreign lenders from lending money in the US loanable funds market....
1. Suppose the government restricts foreign lenders from lending
money in the US loanable funds market. What happens to the
equilibrium interest rate in the US?
2. Suppose credit card companies encourages households to spend
more. What happens to the equilibrium quantity of loans in the
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Which of the following is correct for the Credit Swaps? Select one: a. Diversify the lenders’...
Which of the following is correct for the Credit Swaps? Select
one:
a. Diversify the lenders’ risk
b. Not very liquid
c. All of these
d. Reduce the credit risk of the lenders
Suppose you are uncertain about your future healthcare costs. You think that there is a 50/50...
Suppose you are uncertain about your future healthcare costs.
You think that there is a 50/50 shot that in the next year you will
need to use $12,000 in health services or $0 in health services. If
you buy health insurance, your insurer covers all your health
services costs, otherwise you do. Health insurance costs $7,000.
Your begin with $16,000 in wealth and your utility is U(W) =
sqrt(W).
a)What is the Expected Value (cost) of health services?
b) What...
Name and describe the “C’s” of credit that Banks and other lenders use in evaluating loan...
Name and describe the “C’s” of credit that Banks and other
lenders use in evaluating loan
applicants. Which do you consider the most important and Why?
Name and describe the “C’s” of credit that Banks and other lenders use in evaluating loan...
Name and describe the “C’s” of credit that Banks and other
lenders use in evaluating loan
applicants. Which do you consider the most important and Why?
TRUE/FALSE/UNCERTAIN Suppose a consumer likes Coke just as much as Pepsi and only cares about getting...
TRUE/FALSE/UNCERTAIN
Suppose a consumer likes Coke just as much as Pepsi and
only cares about getting the maximum amount of cola possible. When
shopping, this consumer buys only the cola that is cheaper. [Hint:
Use a consumer theory diagram in your answer.]
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