a) Carefully explain the major differences between the Keynes' and Fisher's models of consumption. b) A family of four has an income of $15,000 today and will earn $24,000 tomorrow. i. If the family consumes $11,500 in the first period and $15,000 in the second period, what is the interest rate? ii. If the family consumes $15,000 in the first period and $13,500 in the second period, what is the interest rate? iii. Explain the income and substitution effects and discuss which effect dominated after the interest rate change from part (a) to part (b.). c) Keynes viewed consumption as an activity based on psychology. Briefly discuss how the work of David Laibson supports Keynes' view?
a) Carefully explain the major differences between the Keynes' and Fisher's models of consumption. b) A family of four has an income of $15,000 today and will earn $24,000 tomorrow. i. If the family consumes $11,500 in the first period and $15,000 in the second period, what is the interest rate? ii. If the family consumes $15,000 in the first period and $13,500 in the second period, what is the interest rate? iii. Explain the income and substitution effects and discuss which effect dominated after the interest rate change from part (a) to part (b.). c) Keynes viewed consumption as an activity based on psychology. Briefly discuss how the work of David Laibson supports Keynes' view?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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M7
Transcribed Image Text:a) Carefully explain the major differences between
the Keynes' and Fisher's models of consumption. b)
A family of four has an income of $15,000 today
and will earn $24,000 tomorrow. i. If the family
consumes $11,500 in the first period and $15,000
in the second period, what is the interest rate? ii. If
the family consumes $15,000 in the first period and
$13,500 in the second period, what is the interest
rate? iii. Explain the income and substitution effects
and discuss which effect dominated after the
interest rate change from part (a) to part (b.). C)
Keynes viewed consumption as an activity based
on psychology. Briefly discuss how the work of
David Laibson supports Keynes' view?
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