Answered: 3. Consider the following consumption…

Business

Economics

3. Consider the following consumption and output functions. Ct = Co+cYt-1 with 0

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Suppose that there are T periods to maximize over. Show that the intertemporal budget constraint is Ct+2 Yt+2 Yt+1 (1+r) (1+r)² (1 + r)² Ct + Ct+1 (1 + r) + 2+...+ Ct+T+1 (1+r)² \ T = Yt + + +...+ Yt+T+1 (1+r)
$
2.1 According to the permanent income hypothesis, how will a representative consumer's bor- rowing and consumption respond to: 1. An anticipated temporary decrease in income at t = 2. 2. An anticipated permanent decrease in income (at time periods t = 1 and t = 2) when it occurs. 3. Are the answers different if the changes in income are unanticipated, i.e. if they come as a surprise to the consumer? Comment on the size of the marginal propensity to consume.
Consider the problem of an individual that has Y dollars to spend on consuming over two periods. Let c, denote the amount of consumption that the individual would like to purchase in period 1 and c2 denote the amount of consumption that the individual would like to consume in period 2. The individual begins period 1 with Y dollars and can purchase c1 units of the consumption good at a price P and can save any unspent wealth. Use sı to denote the amount of savings the individual chooses to hold at the end of period 1. Any wealth that is saved earns interest at rate r so that the amount of wealth the individual has at his/her disposal to purchase consumption goods in period 2 is (1+r)s1. This principal and interest on savings is used to finance period 2 consumption. Again, for simplicity, we can assume that it costs P2 dollars to buy a unit of the consumption good in period 2. 2 The individual's total happiness is measured by the sum of period utility across time, u(cı) + u(c2). Let u(c)…
Demand and Supply model In the notes and lessons, we saw that quantity demanded and quantity supplied may be related by the recurrence relations Pn+1-Pn =α (Dn - Pn), Dn+1-Dn =β (Pn - Dn), where Pn is the level production after n time intervals, Dn is the quantity demanded by the consumer and α and β are proportionality constants. Suppose α=β=k. Which of the following gives the best description of the behaviour of the quantity demanded and level of production when k=2? A. The level of production oscillates with a decreasing amplitude. The quantity demanded also oscillates with a decreasing amplitude. The level of production and quantity demanded diverge from each other as the number time steps n goes to infinity. B. The level of production oscillates with a decreasing amplitude. The quantity demanded also oscillates with a decreasing amplitude. The level of production and quantity demanded reach equilibrium as the number time steps n goes to infinity. C. The level of…
Consider an economy where individuals live for two periods only. Their utility function over consumption in periods 1 and 2 is given by U = 2 log(C1) + 2 log(C2), where C1 and C2 are period 1 and period 2 consumption levels respectively. They have labor income of $100 in period 1 and labor income of $50 in period 2. They can save as much of their income in period 1 as they like in bank accounts, earning interest rate of 5 percent per period. They have no bequest motive, so they spend all their income before the end of period 2. a. What is each individual’s lifetime budget constraint? If they choose consumption in each period so as to maximize their lifetime utility subject to their lifetime budget constraint, what is the optimal consumption in each period? How much do the consumers save in the first period? b. Suppose that the government introduces a social security system that will take $10 from each individual in period 1, put it in a bank account, and transfer it back to…
Suppose Bank of England is considering using the tool of cutting interest rates to boost household consumption. In this question you will be asked to use the intertemporal choice model to assess the impact of different policies on household consumption. Suppose a consumer's current income is £25,000 and their future income is £30,000, and they initially face a market interest rate of 15% on both saving and borrowing. (a) In a diagram with consumption this year (C1) on the horizontal axis and consumption next year (C2) on the vertical axis, illustrate this consumer's budget constraint (using the numerical values set above) and indicate their optimal choice by drawing a indifference curve convex to the origin, assuming that at the current interest rate it is optimal for them to save. (b) Calculate (using the numerical values set above) and interpret their marginal rate of time preference at their optimal choice. (c) Illustrate and explain how a fall in the market interest rate from 15%…
Given that the consumption function is: C = 10 + .9Y, at the level of Y = 200, we should expect the level of savings (S) to be Group of answer choices 0. a. none of the other answers are correct. b. .1 c. 10
1. Which of the following equations is the correct expression of the IS curve? ao+Bo-B₁i+G a. Y = b. Y= C. d. Y= 1-α₁ (1-t) C+I+G Y = 1-a₁ (1-1) ao+Bo-B₁i+G 1+α₁ (1-t) C+I+G 1+a₁ (1-1)
I have uploaded the question and my answer can you check if it's correct?
Solve all this question......you will not solve all questions then I will give you down?? upvote....
Assume that Kelly is a life cycle consumer and receives incomes of 20, 30, 45 and 0 in her four period life. What is Kelly's marginal propensity to consume out of her new wealth (AC/AW) in the following situations: [Hint: Let AC be the the change in consumption compared to what she would have done before the inheritance changed her wealth AW]. 19. In period 2 following an unexpected inheritance of 10: (a) 0.25; (b) 0.33; (c) 0.75; (d) 1.0; 20. In period 3 following an expected lump sum payment from her trust fund of 15: (a) 0.33; (b) 0.75; (c) 0.45; (d) 0.50; 21. What is her desired optimal consumption in period 3 with the anticipated trust fund gift of 15: (a) 20; (b) 30; (c) 27.50; (d) 22.50; 22. In what period of her working life (Y > 0) would her marginal propensity to consume out of an unexpected inheritance of 10 be the highest: (a) 1; (b) 2; (c) 3; (d) 4;