Models

Attempting to model the effects of microcredit is not easy task. It involves first acknowledging that the impoverished communities that microcredit targets are stuck in a "bad" equilibrium. Unless there is intervention in the market, the economy will be stuck in a perpetual state of poverty. However, with a little help from an outside force, the economy can bump up to a sustainable "good" equilibrium. Thus, the model has multiple equilibria that need to be taken into account.

Now, using the standard Keynesian cross model and the multiple equilibria demand curve, we can model the effects of microcredit.

Currently, the economy is stuck in a bad equilibrium. However, as the model shows, an increase in income will dramatically increase spending to a new "good" equilibrium that, again as seen in the model, is sustainable.

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Historical Precedent | Models | Critiques of Microcredit | Benefits of Microcredit | Success Stories | Microcredit Summit Campaign | Conclusion | For More Information