A model is considered in which an entrepreneur uses debt to finance a risky investment project. He may in certain circumstances credibly threaten default on the loan, which is then renegotiated. However, lenders will never lend so much that default is credibly threatened in all states. There...

A two-period macroeconomic model where consumption and investment decisions are given microeconomic foundations is presented. The model is used.to analyze the effects of both current and anticipated fiscal expansion; careful attention is paid to the implications of the government's intertemporal...