Now suppose that there are credit market imperfections in the market for consumer credit, for example, due to asymmetric information in the credit market. Determine the equilibrium effects on consumption, investment, the real interest rate, aggregate output, employment, and the real wage. What is the multiplier and how does it differ from the government expenditure multiplier?
Part 5
The presence of credit market imperfections in the market for consumer credit would result in the output demand curve
â–¼
becoming steeper,
shifting to the left,
shifting to the right,
flattening out,
due to some consumers experiencing
â–¼
an increase
no change
a decrease
in lifetime wealth because of credit market constraints. These consumers would
â–¼
not change
increase
decrease
their labour supply, and there would be
â–¼
a shift to the left in the
no change in the
a shift to the right in the
labour supply curve and output supply curve. Overall, the level of aggregate output
â–¼
should increase,
should decrease,
should remain constant,
and the real interest rate
â–¼
will increase.
will remain the same.
will decrease.
Consumption
â–¼
decreases,
increases,
remains the same,
investment
â–¼
decreases,
increases,
remains the same,
and employment
â–¼
remains the same.
increases.
decreases.
There is a
â–¼
positive
negative
multiplier, and the extent of the effect on output is dependent on how many consumers are credit-constrained.