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.
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- QUESTION 1An individual lives for two periods and decides how much to consume in each period.- In the first period his consumption equals C1 and his income Y1 = 200- In the second period his consumption equals C2 and his income Y2 = 100He can save or borrow money in the first period to finance his consumption in the second period.The interest rate he gets in case he saves or has to pay in case he borrows money equals 7%.Determine the budget constraint of this individual. C2 = −0.935·C1 +314C2 =−1.07·C1 +314C2 =−0.8·C1 +314C2 =−1.08·C1 +314 QUESTION 2The total production of a good y is determined by the production function y = 3L2/3K1/3, where L is labour input and K capital input.The reward (factor prices) for labour and capital are, l = 27 en r = 2, respectively.The producer needs to produce 9000 units of good y.How much units of labour will he hire if he wants to miminize his total costs? 1587,4839,953000515,23 QUESTION 3A good is traded on a perfectly competitive…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 2.1) 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.
- Suppose that a person can borrow and lend at an interest rate of 10 percent. But there is a 5% rate of inflation and one has to pay an income tax of 30 % on all interest income. If you borrow money, you can deduct interest as an expense. Where current consumption is on the horizontal axis and future consumption is on the vertical axis: (a) the budget line will have a kink at the point of no saving or lending. (b) the budget line will be a straight line with a slope of about 1: 02. (c) the budget line will be a straight line with a slope of about 1:05. (d) the budget line will be a straight line with a slope of about 1:35.Assume there are no investment projects in the economy that yield an expected rate of return of 25 percent or more. But suppose there are $10 billion of investment projects yielding expected returns of between 20 and 25 percent; another $10 billion yielding between 15 and 20 percent; another $10 billion between 10 and 15 percent; and so forth. Cumulate these data and present them graphically, putting the expected rate of return on the vertical axis and the amount of investment on the horizontal axis. What will be the equilibrium level of aggregate investment if the real interest rate is (a) 15 percent, (b) 10 percent, and (c) 5 percent? Explain why this curve is the investment demand curve.Consider the intertemporal consumption problem of Mr Cronus between two periods, say this yearand next year. His utility function takes the form U (c1; c2) = pc1 +0:97pc2, where c1 and c2 arehis consumption this and next year respectively. It can be shown (and you do not have to) thatthis utility function satis es diminishing marginal rate of substitution.His yearly income is stable at 100 unit (let say a unit is ten-thousand). He faces di¤erent interestrates between borrowing and saving. Speci cally, the saving interest rate is 0:02, whereas theborrowing interest rate is 0:04.(a) Describe the budget set facing Mr Cronus.(b) Is Mr Cronus a borrower? Explain your answer.(c) Is Mr Cronus a saver? Explain your answer.
- From the diagram below we can see that: B 51.5 50 Julia's IC 0- 4950 Consumption now ($) Select one or more: O a. Julia would give up more than one unit of current consumption to get one additional unit of future consumption. O b. The marginal rate of transformation of future into current consumption is 1.5. c. Julia is indifferent between points A and B. O d. Julia values an additional unit of consumption now more highly than an additional unit of consumption later. Consumption later ($)Assume that Abdullah has RO 44 to spend on Energy drinks and Protein Bars each month and that both goods must be purchased whole (no fractional units). Energy drinks cost RO 8 and Protein Bars cost RO 3 each. Abdullah's preferences for Energy drinks andProtein Bars are summarized by the following information: Energy drinks Protein Bars No. per Month MU/P No. per MU/Py TU MU TU MU Month 1 42 1 18 78 33 3. 108 3 45 4 132 4 54 60 150 162 63 168 66 a. Fill in the figures for marginal utility and marginal utility per dollar both Energy drinks and Protein Bars. b. Are these preferences consistent with the law of ckminishing marginal utility? Explain briefly. c. Given the budget of RO 22, what quantity of Protein Bars and what quantity of Energy drinks will maximize Joe's level of satisfaction? 56Consider a two-period consumption saving model and let f1 and f2 denote the first and secondperiod consumption, respectively. Assume that the interest rate at which the consumer may lend or borrowis 10%. Suppose that a consumer’s utility function is x (f1> f2) = f1 + 20√f2= The consumer first periodincome is L1 = $100 and the present value of her income stream is $330=(a) What is the optimal consumption stream (consumption bundle) of this consumer?(b) Is this consumer borrower or lender? How much does she borrow or lend?(c) What is the effect of a reduction of the interest rate to 5% on the consumer’s optimal first-periodsaving? (Make sure to take into account the effect of the decline in the interest rate on the present value ofthe consumer’s income stream.)
- Suppose the real interest rate is 0%. Daniel worked for 60 years and he retired for 20 years. When Daniel had a job, his annual income was $10,000. During retirement, the annual pension he received was $6,000. Suppose Daniel smoothed consumption completely. What was the amount of savings Daniel had when he retired? O $16,000 O $120,000 $600,000 $60,000Consider 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)…3. Suppose we are in a society where the social rate of time preference is 5% per year. The discount rate of utility is 3.5% per year, and the elasticity of marginal utility of consumption is 1.25. A. What is the assumed growth rate of future consumption under this scenario? B. Now assume the social rate of time preference changes to 10% while all else stays the same. What is the assumed new growth rate of future consumption? C. What does a SRTP of 5% mean compared to a SRTP of 10%? D. Why does the growth rate of future consumption change from one scenario to the other? ( If you Answer allow the above I will upvot definitely . ) Thank you