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.

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

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Q: Suppose that in the year 2015, Oceanaire, Inc. planned to produce 525,000 units of its lightweight…

A: Planned investment implies the intentional, strategic spending by businesses or individuals on…

Q: 1. [35 marks] An individual derives utility from consumption spending C and leisurel according to…

A: The objective of this question is to find the optimal values of consumption (C), leisure (l), and…

Q: . Assume an economy with 1000 consumers. Each consumer has income in the current period of 50 units…

A: There are 1000 consumers Each consumer has current income=50, future income=60 Current tax=10 Future…

Q: Consumption and Saving

A: "consumption" refers to the portion of Christina's earnings that she spends on items and offerings…

Q: Luke is an engineering consultant who lives North Carolina and works around the world. In 2019 Luke…

A: GNP: Gross National product is the sum of the monetary values of all goods and services that are…

Q: Clare is contemplating her possible consumption patter for this year and next. She know that she…

A: Consumption is an important component of GDP. In economics the consumption refers to usage of…

Q: For her statement of income, Maricela indicates the following amounts for the present year: $80,000…

A: Note:- Since we can only answer up to three subparts, we'll answer the first three. Please repost…

Q: I always thought my good friend Rado Coetzee was quite original given his choices. He then once told…

Q: e. Suppose that firm adopts a new technology that doubles output as each level of employment and the…

A: The profit maximizing firm recruit the labor at the point where the marginal revenue productivity of…

Q: Assume an economy with 600 consumers. Each consumer has income in the current period of 70 units and…

A: Dispsable income is the income available to the consumers after paying the taxes and social security…

Q: 5) Mrs. Gizem has a salary of 10 000 TL per month. Assuming that her autonomous (zero-income level)…

A: Here, we calculate the given as follow;

Q: a) Write an expression for 8(t) (aka: force of interest) such that its accumulation function is the…

A: In mathematics and finance, the force of interest is represented as δ(t), is a concept that…

Q: Suppose the base year bundle of goods X, Y, and Z is: (X^(b), Y^(b), Z^(b))= (5,700,60) and the…

A: The Laspeyres Price Index, named after the French economist Étienne Laspeyres, is a system used to…

Q: Suppose that an economy's net investment flow is I(t) = 2t + 10t1/2. Letting K(0) is the initial…

A: Definition: Capital accumulation is the development in growth through investments or benefits.…

Q: Refer to the following figure. The equation for this household's saving function is میرا -300 saving…

A: Savings can be defined as a proportion of income which is saved for future. It can be negative at…

Q: Qx=1.0-2.0Px+1.5I+0.8Py-3.0Pm+1.0A Where Qx= sales of CFC cornflakes, in millions of 10-ounce boxex…

A: A regression model is a tool that can be used to forecast sales. Sales are estimated using the…

Q: (a) Suppose real GDP per person falls during a devastating recession, which in turn causes…

A: GDP: The gross domestic product, or GDP, is a measurement of the total value of all products and…

Q: Consumer's utility function for consumption levels in two periods, c and ca2, is min(2c1, c). The…

A: Given information Two period consumption C1 and C2 Utility function Min(2C1,C2) Interest =r First…

Q: d) From the graph above, calculate the MPS for the saving function.

A: MPS, which stands for Marginal Propensity to Save, is an economic principle denoting the fraction of…

Q: Suppose the real interest rate is 0%. Daniel worked for 60 years and he retired for 20 years. When…

A: Savings at retirement=Earning till retirement-Consumption till retirement

Q: What is the formula for calculating Net Present Value (NPV)? a) NPV = Total Revenue - Total Costs b)…

A: NPV is a financial statistic that compares the present value of all future cash flows (benefits) to…

Q: consumer's income in the current period is y= 100, and income in the future period is y'= 120. He or…

A: The above question is based on the concept of inter-temporal choice. In this concept, the consumer…

Q: Mary has income of $2000 today and $1000 tomorrow. She can lend and borrow at an interest rate of…

A: Intertemporal Consumption Choice Decision: This is an example of the Intertemporal Consumption…

Question

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.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

Step 2

Step 3

Step 4

Step 5

Step 6

Step 7

Step 8

Trending now

This is a popular solution!

Step by step

Solved in 8 steps with 8 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

Describe the effect that higher income has on life expectancy in terms of relative length and resources.
If C = 32 + 0.90Y, how much would an individual save when income is 953? Select one: O a. 63.30 О Б.-825.7О О с. 889.70 O d. 825.70
On December 31, 2021, Annie bought a fitness center with exercise equipment and a building worth $400,000. During 2022, she bought some new equipment for $200,000. At the end of 2022, her equipment and building were valued at $590,000. What was Annie's gross investment during 2022? Thanks! !@$
Assume that Andrew Marcus is 25 years old and expects to live until the age of 75. (a) If he wins €20 million in cash (after taxes) in the lottery and retires, how much will he consume each year if he wants to have constant consumption and use up all his wealth by the time he dies? Assume the real interest rate is zero. (75 words max) (b) If his total income in the year he wins the lottery is his lottery winnings, what will his average propensity to consume be for that year? (75 words max) (c) If he has no other earnings in later years but continues his constant consumption, what will his average propensity to consume be for those later years? (75 words max) (d) What is Andrew's "permanent income" in the year he wins the lottery? What is his "transitory income"? (75 words max)
Suppose that you are considering whether to enroll in a summer computer-training program that costs $3,600. If you take the program, you will have to give up $1,800 of earnings from your summer job. You figure that the program will increase your earnings by $600 per year for each of the next 10 years. Beyond that, it is not expected to affect your earnings. Suppose the interest rate is 10% Use the preceding information to calculate the present value of the wage increase resulting from the training program. Then decide whether the investment is worthwhile, given the present value of the cost of the training program. At this interest rate, the present value of the increase in wages is about the training. Thus, from a strictly monetary viewpoint, you than the present value of the total cost of , which is participate in the training program.
Patience has a utility function 1/2 1/2 U(cl, c2) = c? + 0.80c/? where c is her consumption in period 1 and c is her consumption in period 2. Her income in period 1 is 3 times as large as her income in period 2. At what interest rate will she choose to consume the same amount in period 1 as in period 2? a. 2 b. 0.13 c. 0.25 d. 0 е. О.38 20% 13% 25% 0%
a, b and c