Life Cycle model and MRS

May 26th, 2014
Anonymous
Category:
Accounting
Price: $10 USD

Question description

In a two-period life cycle model, the equilibrium condition is that the marginal rate of substitution of future consumption for current consumption equals one plus the interest rate. Explain what would happen if the MRS exceeds one plus the interest rate, and what forces would be at work to drive things back to equilibrium.

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