ECON 2HH3 Midterm: test2_2hhwinter2013v2.pdf
8 Mar 2014
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Do not open this exam paper until you are told to start the exam. Write your name and student number at the top of this page. Write in ink (if you write in pencil will not have the option of contesting your grade). Background remarks for chapter 8 questions: recall that in chapter 8 consumers live for two periods, receive exogenous income y in the current period and y in the future period. They pay lump sum taxes t in the current period and t in the future period and, unless otherwise indicated, consumers can borrow or lend without restrictions at rate r. a consumer"s lifetime budget constraint is given by c. = (1 + r)we (cid:0) (1 + r)c or (1) There are no rms included in the model. [2 points] consider a credit market imperfection whereby there is asymmetric infor- mation about the quality of borrowers in the economy.
