How Do Binding Borrowing Constraints Change the Determination of Current

question 33

Essay

How do binding borrowing constraints change the determination of current consumption in the Fisher two-period model and in the random-walk hypothesis (permanent-income hypothesis with rational expectations)?

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Definitions:

Penalty Clause

A provision in a contract that specifies a penalty to be paid by a party in the case of a breach of the contract.

Liquidated Damages

A predetermined sum agreed upon in a contract, payable as compensation for failure to perform specific acts or to fulfill certain conditions.

Doctrine Of Part-Performance

A legal concept in contract law that allows an unwritten contract to be enforced if one party has taken significant steps to perform their part.

Quantum Meruit

A doctrine in contract law that allows a person to recover reasonable value of services rendered, when a contract does not exist or is unclear, based on the idea of preventing unjust enrichment.