Suppose that permanent income is calculated as the average of income over the past five years – that is YP = (Y + Y-1 + Y-2 + Y-3 + Y-4 Suppose further that consumption is given by C = 0.9YP a. If you have earned $20000 per year for the past 10 years. What is your permanent income? b. Suppose that next year (period t + 1) you earn $30000. What is your new YP? c. What is your consumption this year and next year? d. What is your short run MPC and long run MPC? e. Assuming you continue to earn $30000 starting in period t + 1, graph the value of your permanent income in each period using the initial YP equation provided above.

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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TECHNICAL
Suppose that permanent income is calculated as the average of income over the past five years – that is YP =
(Y + Y-1 + Y-2 + Y-3 + Y-4
Suppose further that consumption is given by C = 0.9YP
a. If you have earned $20000 per year for the past 10 years. What is your permanent income?
b. Suppose that next year (period t + 1) you earn $30000. What is your new YP?
c. What is your consumption this year and next year?
d. What is your short run MPC and long run MPC?
e. Assuming you continue to earn $30000 starting in period t+ 1, graph the value of your permanent
income in each period using the initial YP equation provided above.
Transcribed Image Text:TECHNICAL Suppose that permanent income is calculated as the average of income over the past five years – that is YP = (Y + Y-1 + Y-2 + Y-3 + Y-4 Suppose further that consumption is given by C = 0.9YP a. If you have earned $20000 per year for the past 10 years. What is your permanent income? b. Suppose that next year (period t + 1) you earn $30000. What is your new YP? c. What is your consumption this year and next year? d. What is your short run MPC and long run MPC? e. Assuming you continue to earn $30000 starting in period t+ 1, graph the value of your permanent income in each period using the initial YP equation provided above.
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