Pakistan’s GDP is $230 billion per year, and Pakistan’s interest rate is constant at 10%. In year 1 Pakistan is hit by a strong earthquake which…
Pakistan’s GDP is $230 billion per year, and Pakistan’s interest rate is constant at 10%. In year 1 Pakistan is hit by a strong earthquake which causes its GDP to drop this year to only $120 billion. Income will recover back to $230 billion in all subsequent years. Assume Pakistan consumers aim to perfectly smooth consumption across all future years, and are able to borrow […]