You live 2 periods. You are born with nothing and you must die with nothing. In period 1 you have labor income of Li1. In period 2 you have labor income of Li2 You may consume (C1 and C2) as well as buy or sell bonds (B). Asume Labor of L1 = 20 & L2 = 220. The interest rate is 10%. Finally assume people want to smooth consumption so C1 = C2. How much do people consume in each period? How much do people consume in each period? 81. 82. 83. What is the value of B 84. 85. 86.

You live 2 periods. You are born with nothing and you must die with nothing. In period 1 you have labor income of Li1. In period 2 you have labor income of Li2 You may consume (C1 and C2) as well as buy or sell bonds (B). Asume Labor of L1 = 20 & L2 = 220. The interest rate is 10%. Finally assume people want to smooth consumption so C1 = C2. How much do people consume in each period? How much do people consume in each period? 81. 82. 83. What is the value of B 84. 85. 86.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose you know the following facts about consumer behavior of Amy in 2019. In a year, Amy spends $10000 on basic household items regardless of how much she is earning. For every dollar of disposable income earned, Amy spends 50% on extra purchases. Amy pays taxes in the amount of $1000, and receives no transfers. Use this information to: Derive Amy’s consumption function in nominal terms. Suppose the price level index in the economy for 2019 is estimated to be P = 2. Rewrite the consumption function in real terms.
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1) In the IS equation why wasnt G in the calculations. 2)Suppose that with all exogenous variables, including T and M at their original values, households become less confident about the future and reduce their autonomous level of consumption from 200 to 150. Solve for the new values of e, Y and NX. With the help of graphs, explain very carefully the mechanisms by which a new equilibrium is reached. 3)Suppose that with all exogenous variables at their original values, the autonomous part of money demand increases to 70. Solve for the new values of e, Y and NX. With the help of graphs, explain very carefully the mechanisms by which a new equilibrium is reached.
Consider the problem of an individual that has Y dollars to spend on consuming over wo periods. Let c1 denote the amount of consumption that the individual would like co purchase in period 1 and c2 denote the amount of consumption that the individual would like to consume in period 2. The individual begins period 1 with Y dollars and can purchase ci units of the consumption good at a price P and can save any unspent wealth. Use s1 to denote the amount of savings the individual chooses to hold at the end of period 1. Any wealth that is saved earns interest at rate r so that the amount of wealth the ndividual has at his/her disposal to purchase consumption goods in period 2 is (1+r)s1. This principal and interest on savings is used to finance period 2 consumption. Again, for simplicity, we can assume that it costs P2 dollars to buy a unit of the consumption good in period 2.
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Suppose that there are T periods to maximize over. Show that the intertemporal budget constraint is Ct+2 Yt+2 Yt+1 (1+r) (1+r)² (1 + r)² Ct + Ct+1 (1 + r) + 2+...+ Ct+T+1 (1+r)² \ T = Yt + + +...+ Yt+T+1 (1+r)
The first 6 fill in the blanks have the same option and the last two blanks options are (larger or smaller)
Consider the problem of an individual that has Y dollars to spend on consuming over two periods. Let c, denote the amount of consumption that the individual would like to purchase in period 1 and c2 denote the amount of consumption that the individual would like to consume in period 2. The individual begins period 1 with Y dollars and can purchase c1 units of the consumption good at a price P and can save any unspent wealth. Use sı to denote the amount of savings the individual chooses to hold at the end of period 1. Any wealth that is saved earns interest at rate r so that the amount of wealth the individual has at his/her disposal to purchase consumption goods in period 2 is (1+r)s1. This principal and interest on savings is used to finance period 2 consumption. Again, for simplicity, we can assume that it costs P2 dollars to buy a unit of the consumption good in period 2. 2 The individual's total happiness is measured by the sum of period utility across time, u(cı) + u(c2). Let u(c)…
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Suppose, that a consumer is a saver, who saves some of his first-period income, and interest rate increases. Discuss the income and substitution effects on consumption in both periods. How consumptions in both periods will change?
2. Suppose that a representative household is part of a two-period economy, with a commodity and a credit market. He holds no initial assets (bonds or money) and no final assets, by the end of the second period. Assume that, for some exogenous reason, the price level decreases at the beginning of period one, before consumption and labor effort decisions are made. This drop is expected to last forever. a) Do you expect this change to yield any real effect? More exactly, are real aggregate output demand (through consumption) or supply (through labor effort) affected? Explain why or why not. b) Imagine now that this household leaves a bequest to the next generation. As a result, a decision is made to hold a fixed real value of bonds (b2/P) by the end of the second period. These will be paid to the children of the household. Under these conditions, will there be any impact from the price level change over the individual consumption and labor effort choices of the representative household…
Multiple choice question and give a short explanation about your answer: According to the Fisher model does a change in the interest rate changes aconsumer’s behaviour if he/she is a borrower? a. a consumer keeps consumption equal in both periods trying to smooth it.b. second-period consumption might rise or fall depending on income orsubstitution effect variations.c. a consumer increases consumption in the first period.d. no effect at all.