Perfectly functioning credit markets and consumer saving Today in my Macroeconomics lecture, while covering the Real Intertemporal Model with Investment (Chapter 11 of Williamson's Macroeconomics), my professor proponed that a key assumption to not make consumer saving a central choice variable is the existence of perfectly functioning credit markets. This left many students and I slightly confused. Can somebody please help me get a good grasp of this? Thanks!
I did some quick research online and think I understand better. My basic understanding is that credit market imperfections restrict a consumer's capacity to borrow or to lend, thus his or her saving ceases to be a &quot;neutral&quot;/&quot;fully&quot; endogenous variable. (Rather than being a means to an end--maximize lifetime wealth--it becomes more and more of an end in itself?)