00:01
Hey everyone, today we're answering problem number eight from chapter six of the textbook.
00:06
How would a decrease in expected interest rates over one's working life affect one's intertemporal budget constraints? how would it affect one's consumption and saving decision? so lower interest rates, what will result is lending becomes cheaper and saving is less rewarding.
01:05
So that's what happens.
01:40
So the fact that lending would be cheaper and saving is less rewarding would be that the intertemporal budget line, which i'll just abbreviate as i -b -l, would become flatter in nature, and there would be a rotation around the amount of current income.
03:00
So that is the result, and that is how we respond to how it affects the intertemporal budget constraints.
03:13
Now in response to the second part of the question, i mean the second question asked in this problem, how would it affect one's consumption and saving decision? so with the flatter intertemporal budget line, this would likely cause a decrease in saving.
03:39
Actually, i'll write in a different color because it's a second.
03:44
It's going to cause a decrease in saving, most likely.
03:56
And with the decrease in saving, there's going to be an increase in current consumption...