Microeconomic Theory
12th Edition
ISBN: 9781337517942
Author: NICHOLSON
Publisher: Cengage
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Question
Chapter 17, Problem 17.8P
a)
To determine
To plot: Graphical representation of initial equilibrium and to indicate total value of current-period savings.
b)
To determine
To know:Alteration in budget constraint.
c)
To determine
To know:Measurement of
e)
To determine
To know:Measurement of capital gains.
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APPLIED ECONOMICS
Topic: Intertemporal Choice
Levinn’s utility function is expressed as the following: U= C1 C2 0.3 where C1 is his first periodconsumption and C2 is his second period consumption. His income in the first period is$2500 and interest rate is at 10%. If at equilibrium, Levinn is neither a borrower nor a lender,then what is his expected income in the second period? Do not copy from others
Assume an economy with 1000 consumers. Each consumer has income in the current period
of 50 units and future income of 60 units, and pays a lump-sum tax of 10 in the current period
and 20 in the future period. The market real interest rate is 8%. Of the 1000 consumers,
500 consume 60 units in the future, while 500 consume 20 units in the future.
a) Determine each consumer's current consumption and current saving.
b) Determine aggregate private saving, aggregate consumption in each period, government
spending in the current and future periods, the current-period government deficit, of
the quantity of debt issued by the government in the current period.
c) Suppose that current taxes increase to 15 for each consumer. Repeat parts (a) and (b)
and explain your results.
Q5) Consumption-Saving Choice
Based on Abel, Bernanke and Croushore, 10th edition, Chapter 4, Numerical Problems No. 1.
A consumer is making saving plans for this year and next. She knows her real income after
taxes will be $50,000 in both years. Any part of her income saved this year will earn a real
interest rate of 10% between this year and next year. Currently, the consumer has no wealth
(no money in the bank or other financial assets, and no debts). There is no uncertainty about
the future.
a) Formally derive the consumer's intertemporal budget constraint.
b) Using the given numerical values rewrite and graph the budget line.
c) Find the consumer's PVLR.
Chapter 17 Solutions
Microeconomic Theory
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