the interest rate will fall to zero.

Crusoe could increase his lifetime utility by consuming more today.

Crusoe could increase his lifetime utility by consuming less today

Crusoe is necessarily a borrower

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Crusoe is a lender today

Crusoe’s wealth has decreased because of the change in the real interest rate

The marginal rate of intertemporal substitution at R is equal to r.

The change in interest rate does not decrease Crusoe’s utility since he is free to keep his original endowment A if he so chooses

credit rationing which changes the intertemporal budget constraint for borrowers

households attempt to smooth their consumption

household saving provides a buffer between income and expenditure

Ricardian equivalence

If an increase in the growth of output is expected, investment will increase.

If an increase in investment is expected, output will increase.

If an increase in the growth of investment is expected, output will increase

Small swings in investment are associated with large swings of output