If a consumer borrows at an interest rate greater than the interest rate at which he...
If a consumer borrows at an interest rate greater than the interest rate at which he or she can lend, then
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banks cannot make a profit. |
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the budget constraint has a kink at the endowment point. |
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the consumer must be a lender. |
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this makes no difference for consumer behavior. |
Homework Answers
the budget constraint has a kink at the endowment point
Reason
The consumer is clearly not a bank, so if he is borrowing at a higher rate, bank will rather make a profit. The consumer is not a lender as lending rate is lower than borrowing rate. Since borrowing rate is higher, there will be a kink signifying the difference as he has a different interest rate.
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