In our discussions of life-cycle models we often assume people are earning income, Y, from the present until time R. However, as we all know, often people spend time in school before entering the workforce. Assume that Ahmad is in school until their graduation at time G. (We assume they have a full-ride scholarship, but no time for a part-time job, so school costs the Ahmad nothing but also they earn nothing while in school). Once they are done school they earn income Y each period until retirement at time R. In the present period Ahmad has W= 0 (i.e they have no initial money in the bank). Further assume that Ahmad’s β = 0 and the the interest rate is zero (r = 0), or in other words, the Ahmad wants to perfectly smooth its consumption over their lifetime. Draw a figure to show how income, consumption, and money in the bank evolve over time for this scenario.
In our discussions of life-cycle models we often assume people are earning income, Y, from the present until time R. However, as we all know, often people spend time in school before entering the workforce. Assume that Ahmad is in school until their graduation at time G.
(We assume they have a full-ride scholarship, but no time for a part-time job, so school costs the Ahmad nothing but also they earn nothing while in school).
Once they are done school they earn income Y each period until retirement at time R.
In the present period Ahmad has W= 0 (i.e they have no initial money in the bank). Further assume that Ahmad’s β = 0 and the the interest rate is zero (r = 0), or in other words, the Ahmad wants to perfectly smooth its consumption over their lifetime.
Draw a figure to show how income, consumption, and money in the bank evolve over time for this scenario.
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