Suppose that permanent income is calculated as the average of income over the past five years; that is, YP = 1/5( Y + Y-1 + Y-2 + Y-3 + Y-4 ) (P1) Suppose further that consumption is given by C = .9 YP. a. If you have earned $20,000 per year for the past 10 years, what is your permanent income? b. Suppose that next year (period t + 1) you earn $30,000. What is your new YP ?
Suppose that permanent income is calculated as the average of income over the past five years; that is, YP = 1/5( Y + Y-1 + Y-2 + Y-3 + Y-4 ) (P1) Suppose further that consumption is given by C = .9 YP. a. If you have earned $20,000 per year for the past 10 years, what is your permanent income? b. Suppose that next year (period t + 1) you earn $30,000. What is your new YP ?
Chapter17: Capital And Time
Section: Chapter Questions
Problem 17.3P
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![Suppose that permanent income is calculated as the average of income over the past five years; that is,
YP = 1/5( Y + Y-1 + Y-2 + Y-3 + Y-4 ) (P1)
Suppose further that consumption is given by C = .9 YP.
a. If you have earned $20,000 per year for the past 10 years, what is your permanent income?
b. Suppose that next year (period t + 1) you earn $30,000. What is your new YP ?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2016b104-2a5e-4ea4-bd3c-9471e72867f1%2F93559fe3-ee35-4df2-9e17-30ed5dccb7e4%2Fwdyoywq_processed.png&w=3840&q=75)
Transcribed Image Text:Suppose that permanent income is calculated as the average of income over the past five years; that is,
YP = 1/5( Y + Y-1 + Y-2 + Y-3 + Y-4 ) (P1)
Suppose further that consumption is given by C = .9 YP.
a. If you have earned $20,000 per year for the past 10 years, what is your permanent income?
b. Suppose that next year (period t + 1) you earn $30,000. What is your new YP ?
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