The market interest rate equals the absolute slope of the representative agent's indifference curve at the endowment point,minus 1.

Question

Quizplus · Accepted Answer

This statement is true according to the intertemporal consumption model, where the market interest rate is determined by the slope of the representative agent's intertemporal budget constraint and the slope of the indifference curve at the endowment point represents the marginal rate of substitution between present and future consumption. The absolute value of this slope minus 1 equals the market interest rate.

The Market Interest Rate Equals the Absolute Slope of the Representative