51. Permanent Income and winning the lottery. Remember to explain the reasoning behind your answers. a) Suppose you win the lottery today, which pays out an immediate lump sum of 10 million dollars. If you obey the Permanent Income Hypothesis and the interest rate is 3 percent, how much will you consume today and in the future? (Assume you live forever, and remember that you've already visited present discounted values in Chapter 7.) b) Now, suppose instead, that the lottery pays out 1 million dollars a year for 20 years. Describe your consumption in this case, under the same assumptions as in the previous question. Now how much will you consume both today and in the future?

51. Permanent Income and winning the lottery. Remember to explain the reasoning behind your answers. a) Suppose you win the lottery today, which pays out an immediate lump sum of 10 million dollars. If you obey the Permanent Income Hypothesis and the interest rate is 3 percent, how much will you consume today and in the future? (Assume you live forever, and remember that you've already visited present discounted values in Chapter 7.) b) Now, suppose instead, that the lottery pays out 1 million dollars a year for 20 years. Describe your consumption in this case, under the same assumptions as in the previous question. Now how much will you consume both today and in the future?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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