In Class we considered the case in which the consumer can borrow and lend freely and the interest rate r. We also considered the case in which the individual can save at rate r but cannot borrow at all. Consider now the intermediate case in which the interest rate charged by the bank for borrowing is larger than the interest rate paid by the bank to the consumer for the money they deposit in the bank. In other words, the consumer can SAVE at the rate rs (s for saving) and can BORROW at rate ro (b for borrowing) with rb > rs. The individual receives y1 and y2 in periods 1 and 2 respectively.
In Class we considered the case in which the consumer can borrow and lend freely and the interest rate r. We also considered the case in which the individual can save at rate r but cannot borrow at all. Consider now the intermediate case in which the interest rate charged by the bank for borrowing is larger than the interest rate paid by the bank to the consumer for the money they deposit in the bank. In other words, the consumer can SAVE at the rate rs (s for saving) and can BORROW at rate ro (b for borrowing) with rb > rs. The individual receives y1 and y2 in periods 1 and 2 respectively.
Chapter13: Monetary Policy: Conventional And Unconventional
Section: Chapter Questions
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