How to ensure smooth consumption.

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Answer 1

Question

Chapter 29, Problem 1FT

To determine

How to ensure smooth consumption.

Expert Solution & Answer

Explanation of Solution

If people want to smooth their consumption over time, they tend to reduce the current consumption and save more. According to the consumption – smoothing theory, people who have fluctuations in income, save most of their income in the good years and use it during the bad times in order to maintain a smooth consumption pattern. When people receive an unexpected winning as a lottery, they tend to postpone their consumption from periods of high income to low income to obtain more stability and predictability. They may also spend money for consuming durable goods like houses or cars which represent spending over time.

Economics Concept Introduction

Concept introduction:

Consumption: Consumption is defined as the act of utilising the total or partly income to meet the needs in a given period of time.

Savings: Savings is defined as the part of income that is not consumed in the current period.

Consumption smoothing: Consumption smoothing is the economic concept which refers to the desire of people to have a stable consumption pattern.

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Consider the simple discrete job search model that we studied in class. Only the unemployed can receive one offer per period from F(w) that is a uniform distribution on [0,2]. There is a constant probability of being laid off at the end of each period while employed. Assume that she can get a new offer right away when laid off. We want to understand the reservation wage, WR, in this model. Assume that u(c) = c. The parameters are a discount factor ẞ and an unemployment benefit b.R and show that T is contraction on [0, ∞). Explicitly state any additional assumptions that you may need.(Grading guide line: 5pt for the exact form of T, 10pt for showing contraction, and 5pt for stating correct assumptions.)< (b) Discuss why (a) is useful to understand the reservation wage wд in this economy.< (c) We write WR = WR (b,ẞ,λ) to reveal its dependence on (b,ẞ,λ). Show that 0 ≤ aWR дь OWR дл ≤1 and ≥0. What about ? awR ав State any additional assumptions that you may need.< (d) Briefly explain the…

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show written calculation for B

Answer 2

Question

Chapter 29, Problem 1FT

To determine

How to ensure smooth consumption.

Expert Solution & Answer

Explanation of Solution

If people want to smooth their consumption over time, they tend to reduce the current consumption and save more. According to the consumption – smoothing theory, people who have fluctuations in income, save most of their income in the good years and use it during the bad times in order to maintain a smooth consumption pattern. When people receive an unexpected winning as a lottery, they tend to postpone their consumption from periods of high income to low income to obtain more stability and predictability. They may also spend money for consuming durable goods like houses or cars which represent spending over time.

Economics Concept Introduction

Concept introduction:

Consumption: Consumption is defined as the act of utilising the total or partly income to meet the needs in a given period of time.

Savings: Savings is defined as the part of income that is not consumed in the current period.

Consumption smoothing: Consumption smoothing is the economic concept which refers to the desire of people to have a stable consumption pattern.

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Answer 3

Question

Chapter 29, Problem 1FT

To determine

How to ensure smooth consumption.

Expert Solution & Answer

Explanation of Solution

If people want to smooth their consumption over time, they tend to reduce the current consumption and save more. According to the consumption – smoothing theory, people who have fluctuations in income, save most of their income in the good years and use it during the bad times in order to maintain a smooth consumption pattern. When people receive an unexpected winning as a lottery, they tend to postpone their consumption from periods of high income to low income to obtain more stability and predictability. They may also spend money for consuming durable goods like houses or cars which represent spending over time.

Economics Concept Introduction

Concept introduction:

Consumption: Consumption is defined as the act of utilising the total or partly income to meet the needs in a given period of time.

Savings: Savings is defined as the part of income that is not consumed in the current period.

Consumption smoothing: Consumption smoothing is the economic concept which refers to the desire of people to have a stable consumption pattern.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 29, Problem 1FT

To determine

How to ensure smooth consumption.

Expert Solution & Answer

Explanation of Solution

If people want to smooth their consumption over time, they tend to reduce the current consumption and save more. According to the consumption – smoothing theory, people who have fluctuations in income, save most of their income in the good years and use it during the bad times in order to maintain a smooth consumption pattern. When people receive an unexpected winning as a lottery, they tend to postpone their consumption from periods of high income to low income to obtain more stability and predictability. They may also spend money for consuming durable goods like houses or cars which represent spending over time.

Economics Concept Introduction

Concept introduction:

Consumption: Consumption is defined as the act of utilising the total or partly income to meet the needs in a given period of time.

Savings: Savings is defined as the part of income that is not consumed in the current period.

Consumption smoothing: Consumption smoothing is the economic concept which refers to the desire of people to have a stable consumption pattern.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 29, Problem 1FT

To determine

How to ensure smooth consumption.

Expert Solution & Answer

Explanation of Solution

If people want to smooth their consumption over time, they tend to reduce the current consumption and save more. According to the consumption – smoothing theory, people who have fluctuations in income, save most of their income in the good years and use it during the bad times in order to maintain a smooth consumption pattern. When people receive an unexpected winning as a lottery, they tend to postpone their consumption from periods of high income to low income to obtain more stability and predictability. They may also spend money for consuming durable goods like houses or cars which represent spending over time.

Economics Concept Introduction

Concept introduction:

Consumption: Consumption is defined as the act of utilising the total or partly income to meet the needs in a given period of time.

Savings: Savings is defined as the part of income that is not consumed in the current period.

Consumption smoothing: Consumption smoothing is the economic concept which refers to the desire of people to have a stable consumption pattern.

Answer 6

Chapter 29, Problem 1FT

To determine

How to ensure smooth consumption.

Expert Solution & Answer

Explanation of Solution

If people want to smooth their consumption over time, they tend to reduce the current consumption and save more. According to the consumption – smoothing theory, people who have fluctuations in income, save most of their income in the good years and use it during the bad times in order to maintain a smooth consumption pattern. When people receive an unexpected winning as a lottery, they tend to postpone their consumption from periods of high income to low income to obtain more stability and predictability. They may also spend money for consuming durable goods like houses or cars which represent spending over time.

Economics Concept Introduction

Concept introduction:

Consumption: Consumption is defined as the act of utilising the total or partly income to meet the needs in a given period of time.

Savings: Savings is defined as the part of income that is not consumed in the current period.

Consumption smoothing: Consumption smoothing is the economic concept which refers to the desire of people to have a stable consumption pattern.

Answer 7

Chapter 29, Problem 1FT

To determine

How to ensure smooth consumption.

Answer 8

Expert Solution & Answer

Explanation of Solution

If people want to smooth their consumption over time, they tend to reduce the current consumption and save more. According to the consumption – smoothing theory, people who have fluctuations in income, save most of their income in the good years and use it during the bad times in order to maintain a smooth consumption pattern. When people receive an unexpected winning as a lottery, they tend to postpone their consumption from periods of high income to low income to obtain more stability and predictability. They may also spend money for consuming durable goods like houses or cars which represent spending over time.