KEY TERMS

consumption-smoothing

motive, p. 145

desired capital stock, p. 158

effective tax rate, p. 164

expected real after-tax interest rate, p. 151

gross investment, p.

income effect of the real interest rate on saving, p. 149

lump-sum tax cut, p. 154 marginal propensity to consume (MPC), p. 146 net investment, p. 166 Ricardian equivalence proposition, p. 155

substitution effect of the real

interest rate on saving, p. 149 tax-adjusted user cost of

capital, p. 163

user cost of capital, p. 159

► KEY TERMS FROM APPENDIX

borrowing constraint, p. 199

budget constraint, p. 189

budget line, p. 189

indifference curve, p. 191

life-cycle model, p. 197

no-borrowing, no-lending

point, p. 201 permanent income

theory, p. 196

present value, p. 190 present value of lifetime consumption (PVLC), p. 191 present value of lifetime resources (PVLR), p. 190 utility, p. 191

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