Question: Suppose that a consumer can borrow only with collateralizable housing wealth as security against the loan. As a result, the budget constraint is kinked.

Suppose that a consumer can borrow only with collateralizable housing wealth as security against the loan. As a result, the budget constraint is kinked. Initially, the budget constraint shifts in with a decrease in the price of housing from p to pp. For example, in the above figure, the initial budget constraint ABD shifts to FGH in this case.

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