Using diagrams as appropriate, explain why the desire of households to smooth their consumption over time is a basic source of stabilisation in an economy, moreover, how credit constraints limit consumption smoothing, amplify output fluctuations and lower welfare. What effects is the Covid-19 pandemic likely to have had on the borrower's and lender's feasible frontier and indifference curve?

Using diagrams as appropriate, explain why the desire of households to smooth their consumption over time is a basic source of stabilisation in an economy, moreover, how credit constraints limit consumption smoothing, amplify output fluctuations and lower welfare. What effects is the Covid-19 pandemic likely to have had on the borrower's and lender's feasible frontier and indifference curve?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter12: The Partial Equilibrium Competitive Model

Section: Chapter Questions

Problem 12.12P

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