COURSE: MACROECONOMICS - IS-LM MODEL Demonstrate under the assumptions of the IS-LM model the effect of having a consumption function with an exogenous component, an income-dependent part and a part that depends on the interest rate. Graph
Q: 6. Derive the functional form of the IS curve for the following economy: [Hint: Use the equilib-…
A: Given; C=C0+C1(Y-T)G=G¯I=I0-I1(r)T=T¯
Q: it important in macro-eco
A: The circular flow model demonstrates of how the money moves through the society.
Q: Assume a person is attempting to maximize utility which depends on spending towards consumption and…
A: Consumers seek the combination of goods that allows them to reach the highest indifference curve…
Q: Permanent Income of consumption is just the average of all current and future incomes. Thus, one…
A:
Q: The below five graphs show the development of key macroeconomic variables over the scope of three…
A: Since you have asked multiple questions, we will solve the first question for you. If you want any…
Q: What is a random walk? How is Hall’s random-walk model of consumption related to the life-cycle and…
A: A random walk is a concept in statistics and finance that describes a sequence of data points where…
Q: Jack and Jill both obey the two-period Fisher model of consumption. Jack earns $100 in the first…
A: The objective of the question is to find the interest rate 'r' based on the two-period Fisher model…
Q: How do the life-cycle and permanent-income hypotheses resolve the seemingly contradictory pieces of…
A: The disposable income is the income after tax rate. The disposable income can be either saved or…
Q: Q1. Consider the following two-period model of consumption and saving: Utility = C1^0.5 + B*C2^0.5…
A: Utility = C1^0.5 + B*C2^0.5 C1 + C2/(1+r) = Y1 + Y2/(1+r) where Y1 = 4, Y2 = 1, r = 0.17 and B =…
Q: (1)Consider the following macroeconomic model of an économy. Y = C+1+G+ NX.... C = 250 + 0.75Y -…
A: Note:- Since we can only answer up to three subparts, we'll answer the first three. Please repost…
Q: Explain thé importáñčé óf macroeconomics in an economy
A: According to the given question It is the macroeconomic which is not concerned with a single…
Q: Discuss the lifecycle income hypothesis theory of consumption and explain its applicability in the…
A: As economies and societies developed, the study of economics got more complicated. Hence, as a…
Q: 1.11 If desired investment exceeds actual investment, then… a) The economy is in a recession. b)…
A: Hi! thanks for the question but as per the guidelines, we can answer only one question at one time.…
Q: Linear equations for the consumption and saving schedules take the general form C = a + bY and S =…
A: The consumption function is used to explain the relationship between consumption and disposable…
Q: Explain the criticism of life cycle theory of consumption and highlight the importance of economic…
A: Explaination of the criticism of life cycle theory of consumption The life cycle hypothesis accepts…
Q: -What are the underlying possible reasons for a J curve? Explain.
A: The J-curve is used to show the effects of an event over a particular period of time. In economics,…
Q: consumption. Jack earns $100 in the first period and $100 in the second period. Jill earns nothing…
A:
Q: Consider the intertemporal model of consumption studied in class, with two possible periods.…
A: The intertemporal model of consumption assumes that individuals have a finite lifespan and must…
Q: A consumer makes decision to consume in this year and next year. This year she has an income of M1 =…
A: Here we are given the intertemporal consumption problem. Here consumer decides the consumption in…
Q: Consider an economy described by the following equations: Y=C + I +G Y=7,000 G=4000 T=2,000…
A: Here we are given various components of the demand function using that we will find the equilibrium…
Q: What is an aggregate? How is it used in macroeconomics? Give two examples of specific aggregates…
A: The word aggregate used for something in totality.
Q: Smoothing consumption and income are motivations for several actions that individuals take- saving,…
A: Consumption Soothing Consumption smoothing is an macroeconomic framework that explains people's need…
Q: 3. Analytic Question on Durable Consumption It is known that durable consumption is more sensitive…
A: Intertemporal Utility function : U(c1 ,c2 ) = 0.5 (c1 + x0)0.5 + 0.5B (c2)0.5 Period 1 budget…
Q: Jack and Jill both obey the two-period Fisher model of consumption. Jack earns $200 in the first…
A: The two-period Fisher model of consumption is a basic economic model that helps to explain how…
Q: Given that the individual is a saver, show the impact of: i) An increase in interest rate on Current…
A: Interest rate is the rate at which a person borrows a principal amount from a lender. When there is…
Q: Consider the investment function of the IS model. Suppose that in the long-run 20% of GDP is spent…
A: Gross Domestic Product is defined as the final value of all goods and services produced in a economy…
Q: Discuss one macro economics effect of covid 19 and what are the proposed solutions to address this…
A: The impact of COVID 19 on the economy had been pretty disruptive with respect to the loss of human…
Q: Describe the effects of a decrease in the interest rate on present and next period’s consumption if…
A: The intertemporal choice of consumption approach involves a person making consumption decisions…
Q: In the context of the Irving Fisher two-period model, if a person is a saver (i.e., C1 < Y1), a fall…
A: Answer: If a person is a saver and the interest rate falls then the future consumption (C2) will…
COURSE:
Demonstrate under the assumptions of the IS-LM model the effect of having a consumption function with an exogenous component, an income-dependent part and a part that depends on the interest rate. Graph
Step by step
Solved in 2 steps with 2 images
- Smoothing consumption and income are motivations for several actions that individuals take- saving, borrowing, lending, investment... it is also an optimal individual choice to overcome the impacts of unemployment and recession. Write an essay on the role, importance and methods of consumption (and income) smoothing in the study of macroeconomics. You may use figures, diagrams and tables to suppprt your answer.Please help me with this question wih explanantion.Course: Introduction to Microeconomics Topic: Intertemporal Consumption DecisionsA consumer makes decision to consume in this year and next year. This year she has an income of M1 = $ 1.5 million and next year her income will be M2 = $ 2.75 million. Interest rate is 10%. Her intertemporal preferences are represented by function U(c1, c2) = c1*c2, whose intertemporal marginal rate of substitution is IMRS = c2/c1.a) Find and graph Budget Constraintb) Find and graph optimal consumption basket and indicate whether the consumer SAVES or BORROWS in the FIRST YEAR.c) Indicate whether following statement is true or false: "Any increase in interest rate will cause a decrease in consumer's welfare" Justify.d) If next year's income is maintained, how much would this year's income have to be for consumer to neither save nor borrow money at 10% interest rate?e) How much would interest rate have to be for consumer to consume exactly her initial endowment (M1 = $ 1.5 million and M2 = $ 2.75…
- Explain the criticism of life cycle theory of consumption and highlight the importance of economic models3. Analytic Question on Durable Consumption It is known that durable consumption is more sensitive to interest rates and expected income. In this question, we investigate if this is the case in the context of the model we have been studying. We investigate the following decision: U (c1, c2) 1 max {c1,c2} 2 VCi + xo + subject to the following budget constraints: The time 1 budget constraint: a = Y1 - Ci and the time 2 budget constraint: C2 = Y2 + (1 +r) a. The novelty is that ro is now a variable to represents past purchases of goods 1. You can think of this as a car. In turn, we have that x1 = c1 so a1 is consumption derived utility in period 2 derived from past purchases. For this question assume that B (1+ r) = 1. Answer the following questions. а. Substitute out a from both budget constraints, the one at time 1 and time 2, to write a single intertemporal budget constraint. b. Show that the Euler equation (the equation that relates the marginal utility of consumption to the interest…How is interest rate calculated when using intertemporal consumption between two periods. Can a formula be provided, please? Subject area intertemporal consumption (microeconomics) For reference : Income 1 Income 2 Consumption 1 Consumption 2 (How is the interest rate calculated if given the figures for Income 1, Income 2, Consumption 1 and Consunpmtion 2 . Please explain
- Discuss one macro economics effect of covid 19 and what are the proposed solutions to address this macroeconomic impact. what are the challenges to overcome this problem from a macroeconomic perspective?Describe the effects of a decrease in the interest rate on present and next period’s consumption if the individual is a net lender (i.e., has savings) after period 1 and the substitution effect is larger than the income effect. Show your answer graphicallyConsider the two-period model. The consumerís preferences over current and future consumption (c and c 0 ) are: REFER TO IMAGE FOR NEXT STEP (a) Find lifetime wealth, we. (b) Set up the Lagrangian and FINDd the optimal levels of current consumption (c), future consumption (c') and saving (y-t-c) c) Confirm that the allocation you found in part (b) is in fact optimal, by completing the following table. refer to second image
- In a two-period model, an individual earns and consumes C1 in period 1 and only consumes C2 in period 2. Suppose the saving interest rate is 3.3% and the income in period 1 is $4,500. Assuming consumption smoothing, the consumption (C1 or C2) for period 1 and period 2 should be $ A . Compute A.In a two-period model, an individual earns and consumes C1 in period 1 and only consumes C2 in period 2. Suppose the saving interest rate is 3.3% and the income in period 1 is $4,500. Assuming consumption smoothing, the consumption (C1 or C2) for period 1 and period 2 should be $ A . Compute A.Linear equations for the consumption and saving schedules take the general form C = a + bY and S = -a + (1 - b)Y, where C, S, and Y are consumption, saving, and national income, respectively. The constant a represents the vertical intercept, and b represents the slope of the consumption schedule.a. Use the following data to substitute numerical values for a and b in the consumption and saving equations. b. What is the economic meaning of b? Of (1 - b)? c. Suppose that the amount of saving that occurs at each level of national income falls by $20 but that the values of b and (1 - b) remain unchanged. Restate the saving and consumption equations for the new numerical values, and cite a factor that might have caused the change.How do the life-cycle and permanent-income hypotheses resolve the seemingly contradictory pieces of evidence regarding consumption behavior?