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![a) True or False: Absolute PPP may hold even when relative PPP does not because
Absolute PPP looks at levels at a specific point in time, and levels are always
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- Quantity of Potato Chips E Quantity of Diet Coke Refer to the figure. What point does NOT represent a possible consumption option? a) point A b) point B c) point D d) point EAnswer correctly and explain properly within 1 hour will give you positive feedback. The figure shows the trade-off between consumption and quality of the environment. Which of the following statements best explains the shape of the feasible consumption frontier? 100 Feasible consumption frontier (given abatement technology) Maximum level of consumption, zero abatement Feasible set E with zero abatement 50 Consumption of goods and services (billions €) The marginal rate of transformation increases as more consumption is given up. As we sacrifice more and more consumption, the marginal gains in terms of environmental quality increase. The diagram shows that the environmental gains from giving up consumption are large (and cheap) at the beginning. This is because it assumes that we adopt the most cost-effective technologies first. We care less about giving up some consumption when consumption is high (say from 500 to 450) than we do when consumption is low (say 100 to 50). Quality of the…emperical evidence suggests that consumers tend to spend their current disposable income immediately
- What happens to the mulitiplier as the MPC fallsA consumer's consumption-utility function for a two period horizon is 0.5 U(Cg,G) =C,G" he consumer's earned income stream is given by mo, m1 and the market rate of interest is r. a) Write the intertemporal budget constraint in present value terms. If the consumer does not consume anything in peripd 0, what is the most she can consume in period 1? b) Draw a graph that shows optimal consumption in each period co* and c1*. What is the slope of her budget line? c) Solve the problem for optimal consumption in each period co* and c;*. d) Suppose mọ is S50 and mị is S110 and r = 0.1. Is the consumer a borrower or a lender? Show this outcome by drawing co*. C1*, mo, mį, and bond-holdings on your graph.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…
- There are two goods in the economy: electricity (E) and the composite good (Y). Suppose the government subsidizes the first 20kWh of electricity consumption so that the price of electricity is ¥5 for first 20kWh and ¥10 thereafter, while the price of the composite good remains constant at py = ¥10. (a) Placing the composite good on the vertical axis and electricity on the hor- izontal axis, carefully sketch the budget set for the consumer who has income ¥500. (b) Suppose a consumer's utility function is given by u(E,Y)= EY. Find the consumer's utility maximizing bundle.Using Fisher's Intertemporal Choice model, consider the following scenario: Suppose Milo earns $1,750 in the first period and $2,500 in the second period. If he consumes $1,200 in the first period and $1,550 in the second period, what is the interest rate? Now if Milo’s consumption changes to $1,800 in the first period and $2,000 in the second period, what is the new interest rate?The economy was at point A producing 100X and 200Y. It moved to point B where it produces 200X and 300Y. It follows that point A may have been a point below the economy's production possibilities frontier (PPF), while point B may lie on the PPF. the economy's PPF could have shifted outward and point B was a point on the economy's old PPF the economy has moved from one point on its PPF to another point on the same PPF.
- Consider the standard Ramsey model with endogenous labor supply. Assume that the house- hold has a unitary time endowment that it can split between labor time (L;) and leisure time (1 – Lt). The household's problem is defined as follows: Σ Vo Bt. max Ct,Ct+1,Lt,Lt+1,Kt+1 t=0 s.t. K41 - Kį =r¡Kt +W¿Lt – Ct The representative firm maximizes profit as follows: max по — Lt,Kt Y; – w;Lt – (rt + 8)K; (1+r¿)* t=0 s.t. Y = AK, L -aWith the use of graphs state how the Consumer’s optimum in the Fisher’s Intertemporal Choice Model.What are the determinants for an individual demand? Derive with the help of indifferencecurves and the budget constraint the optimal consumption plan. How do you transfer theoptimal consumption plan into an individual demand function?
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