The consumer’s saving and consumption.

Question

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Answer 1

Question

Chapter 4, Problem 1NP

a)

To determine

The consumer’s saving and consumption.

a)

Expert Solution

Explanation of Solution

A consumer is making saving plans for this year and next year.

Let her income is Y, saving is S, and consumption is C, which is same in both the years.

Income in year 1 is Y₁.

Income in year 2 is Y₂.

The consumer’s saving in the 1^s^t year is Y₁-C

The consumer’s saving in second year is Y₂-C.

Saving the 1^s^t year earn interest rate R%.

Let consumer pay X amount as tuition fee.

Then, the mathematical expression for tuition fee would be:

X=(Y1−C)(1+r)+(Y2−C)

Given,

Y₁ = Y₂ = $50,000,

X = $16,800,

R = 10%,

( Y 1 −C)( 1+r)+( Y 2 −C)=$16,800( 50,000−C)( 1.1)+( 50,000−C)=$16,800( 50,000−C)( 1.1+1)=$16,800( 50,000−C)( 2.1)=$16,80050,000−C=8,000

After rearranging this equation, the value of consumption and saving is derived:

C = $42,000

S = $8,000 (= $50,000-$42000)

b)

To determine

The change in saving and consumption when consumer’s current income rises from $50,000 to $54,200.

b)

Expert Solution

Explanation of Solution

New income Y₁ = $54,200,

Y₂ = $50,000

X = $16,800,

R = 10%,

( Y 1 −C )( 1+r )+( Y 2 −C )=$16,800 ( 54,200−C )( 1.1 )+( 50,000−C )=$16,800109,620–2.1C=$16,800

After rearranging this equation, the value of consumption and saving is derived:

C = $44,200

S = $10,000 (= $54,200-$44200).

Therefore, a rise in current income decreases the saving and increases the consumption.

c)

To determine

The change in saving and consumption when consumer’s expected income rises from $50,000 to $54,200 next year.

c)

Expert Solution

Explanation of Solution

Y₁ = $50,000

New expected income, Y₂ = $54,200,

X = $16800,

R = 10%,

( Y 1 −C)( 1+r)+( Y 2 −C)=$16,800( 50,000−C)( 1.1)+( 54,200−C)=$16,800109,200–2.1C=$16,800

After rearranging this equation, the value of consumption and saving is derived:

C = $44,000

S = $6,000 (= $50,000-$44000).

Therefore, a rise in future income decreases the saving and increases the consumption.

d)

To determine

The change in saving and consumption when during the current year consumer receives an inheritance of $1050 (an increase in wealth, not income).

d)

Expert Solution

Explanation of Solution

Y₁ = Y₂ = $50,000,

X = $16,800,

R = 10%,

The amount of inheritance I = $1,050.

( Y 1 +I−C )( 1+r )+( Y 2 −C )=$16,800 ( 50,000+1,050−C )( 1.1 )+( 50,000−C )=$16,800106,155–2.1C=$16,800

After rearranging this equation, the value of consumption and saving is derived:

C = $42,550

S = $7450 (= $50,000-$42550).

Therefore, a rise in wealth leads to decrease the saving and increase the consumption.

e)

To determine

The change in saving and consumption when the expected tuition payment for next year rises from $16,800 to $18,900.

e)

Expert Solution

Explanation of Solution

Y₁ = Y₂ = $50,000,

New expected tuition payment X = $18,900,

R = 10%,

( Y 1 −C) ( 1+r)+( Y 2 −C)=$18,900( 50,000−C)( 1.1)+( 50,000−C)=$18,900105,000–2.1C=$18,900

After rearranging this equation, the value of consumption and saving is derived:

C = $41000

S = $9000 (= $50,000-$41000).

Therefore, a rise in expected tuition fee for next year leads to increase the saving and decrease the consumption.

f)

To determine

The change in saving and consumption when rate of interest rises from 10% to 24%.

f)

Expert Solution

Explanation of Solution

The real interest rate rises from 10% to 24%.

Y₁ = Y₂= $50,000,

X = $16800,

New rate R = 24%,

( Y 1 −C)( 1+r)+( Y 2 −C)=$16800( 50,000−C) ( 1.24)+( 50,000−C)=$16,800112,000–2.24C=$16,800

After rearranging this equation, the value of consumption and saving is derived:

C = $42500

S = $7500 (= $50,000-$42500).

Therefore, a rise in wealth leads to decrease the saving and increase the consumption.

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Answer 2

Question

Chapter 4, Problem 1NP

a)

To determine

The consumer’s saving and consumption.

a)

Expert Solution

Explanation of Solution

A consumer is making saving plans for this year and next year.

Let her income is Y, saving is S, and consumption is C, which is same in both the years.

Income in year 1 is Y₁.

Income in year 2 is Y₂.

The consumer’s saving in the 1^s^t year is Y₁-C

The consumer’s saving in second year is Y₂-C.

Saving the 1^s^t year earn interest rate R%.

Let consumer pay X amount as tuition fee.

Then, the mathematical expression for tuition fee would be:

X=(Y1−C)(1+r)+(Y2−C)

Given,

Y₁ = Y₂ = $50,000,

X = $16,800,

R = 10%,

( Y 1 −C)( 1+r)+( Y 2 −C)=$16,800( 50,000−C)( 1.1)+( 50,000−C)=$16,800( 50,000−C)( 1.1+1)=$16,800( 50,000−C)( 2.1)=$16,80050,000−C=8,000

After rearranging this equation, the value of consumption and saving is derived:

C = $42,000

S = $8,000 (= $50,000-$42000)

b)

To determine

The change in saving and consumption when consumer’s current income rises from $50,000 to $54,200.

b)

Expert Solution

Explanation of Solution

New income Y₁ = $54,200,

Y₂ = $50,000

X = $16,800,

R = 10%,

( Y 1 −C )( 1+r )+( Y 2 −C )=$16,800 ( 54,200−C )( 1.1 )+( 50,000−C )=$16,800109,620–2.1C=$16,800

After rearranging this equation, the value of consumption and saving is derived:

C = $44,200

S = $10,000 (= $54,200-$44200).

Therefore, a rise in current income decreases the saving and increases the consumption.

c)

To determine

The change in saving and consumption when consumer’s expected income rises from $50,000 to $54,200 next year.

c)

Expert Solution

Explanation of Solution

Y₁ = $50,000

New expected income, Y₂ = $54,200,

X = $16800,

R = 10%,

( Y 1 −C)( 1+r)+( Y 2 −C)=$16,800( 50,000−C)( 1.1)+( 54,200−C)=$16,800109,200–2.1C=$16,800

After rearranging this equation, the value of consumption and saving is derived:

C = $44,000

S = $6,000 (= $50,000-$44000).

Therefore, a rise in future income decreases the saving and increases the consumption.

d)

To determine

The change in saving and consumption when during the current year consumer receives an inheritance of $1050 (an increase in wealth, not income).

d)

Expert Solution

Explanation of Solution

Y₁ = Y₂ = $50,000,

X = $16,800,

R = 10%,

The amount of inheritance I = $1,050.

( Y 1 +I−C )( 1+r )+( Y 2 −C )=$16,800 ( 50,000+1,050−C )( 1.1 )+( 50,000−C )=$16,800106,155–2.1C=$16,800

After rearranging this equation, the value of consumption and saving is derived:

C = $42,550

S = $7450 (= $50,000-$42550).

Therefore, a rise in wealth leads to decrease the saving and increase the consumption.

e)

To determine

The change in saving and consumption when the expected tuition payment for next year rises from $16,800 to $18,900.

e)

Expert Solution

Explanation of Solution

Y₁ = Y₂ = $50,000,

New expected tuition payment X = $18,900,

R = 10%,

( Y 1 −C) ( 1+r)+( Y 2 −C)=$18,900( 50,000−C)( 1.1)+( 50,000−C)=$18,900105,000–2.1C=$18,900

After rearranging this equation, the value of consumption and saving is derived:

C = $41000

S = $9000 (= $50,000-$41000).

Therefore, a rise in expected tuition fee for next year leads to increase the saving and decrease the consumption.

f)

To determine

The change in saving and consumption when rate of interest rises from 10% to 24%.

f)

Expert Solution

Explanation of Solution

The real interest rate rises from 10% to 24%.

Y₁ = Y₂= $50,000,

X = $16800,

New rate R = 24%,

( Y 1 −C)( 1+r)+( Y 2 −C)=$16800( 50,000−C) ( 1.24)+( 50,000−C)=$16,800112,000–2.24C=$16,800

After rearranging this equation, the value of consumption and saving is derived:

C = $42500

S = $7500 (= $50,000-$42500).

Therefore, a rise in wealth leads to decrease the saving and increase the consumption.

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Answer 3

Question

Chapter 4, Problem 1NP

a)

To determine

The consumer’s saving and consumption.

a)

Expert Solution

Explanation of Solution

A consumer is making saving plans for this year and next year.

Let her income is Y, saving is S, and consumption is C, which is same in both the years.

Income in year 1 is Y₁.

Income in year 2 is Y₂.

The consumer’s saving in the 1^s^t year is Y₁-C

The consumer’s saving in second year is Y₂-C.

Saving the 1^s^t year earn interest rate R%.

Let consumer pay X amount as tuition fee.

Then, the mathematical expression for tuition fee would be:

X=(Y1−C)(1+r)+(Y2−C)

Given,

Y₁ = Y₂ = $50,000,

X = $16,800,

R = 10%,

( Y 1 −C)( 1+r)+( Y 2 −C)=$16,800( 50,000−C)( 1.1)+( 50,000−C)=$16,800( 50,000−C)( 1.1+1)=$16,800( 50,000−C)( 2.1)=$16,80050,000−C=8,000

After rearranging this equation, the value of consumption and saving is derived:

C = $42,000

S = $8,000 (= $50,000-$42000)

b)

To determine

The change in saving and consumption when consumer’s current income rises from $50,000 to $54,200.

b)

Expert Solution

Explanation of Solution

New income Y₁ = $54,200,

Y₂ = $50,000

X = $16,800,

R = 10%,

( Y 1 −C )( 1+r )+( Y 2 −C )=$16,800 ( 54,200−C )( 1.1 )+( 50,000−C )=$16,800109,620–2.1C=$16,800

After rearranging this equation, the value of consumption and saving is derived:

C = $44,200

S = $10,000 (= $54,200-$44200).

Therefore, a rise in current income decreases the saving and increases the consumption.

c)

To determine

The change in saving and consumption when consumer’s expected income rises from $50,000 to $54,200 next year.

c)

Expert Solution

Explanation of Solution

Y₁ = $50,000

New expected income, Y₂ = $54,200,

X = $16800,

R = 10%,

( Y 1 −C)( 1+r)+( Y 2 −C)=$16,800( 50,000−C)( 1.1)+( 54,200−C)=$16,800109,200–2.1C=$16,800

After rearranging this equation, the value of consumption and saving is derived:

C = $44,000

S = $6,000 (= $50,000-$44000).

Therefore, a rise in future income decreases the saving and increases the consumption.

d)

To determine

The change in saving and consumption when during the current year consumer receives an inheritance of $1050 (an increase in wealth, not income).

d)

Expert Solution

Explanation of Solution

Y₁ = Y₂ = $50,000,

X = $16,800,

R = 10%,

The amount of inheritance I = $1,050.

( Y 1 +I−C )( 1+r )+( Y 2 −C )=$16,800 ( 50,000+1,050−C )( 1.1 )+( 50,000−C )=$16,800106,155–2.1C=$16,800

After rearranging this equation, the value of consumption and saving is derived:

C = $42,550

S = $7450 (= $50,000-$42550).

Therefore, a rise in wealth leads to decrease the saving and increase the consumption.

e)

To determine

The change in saving and consumption when the expected tuition payment for next year rises from $16,800 to $18,900.

e)

Expert Solution

Explanation of Solution

Y₁ = Y₂ = $50,000,

New expected tuition payment X = $18,900,

R = 10%,

( Y 1 −C) ( 1+r)+( Y 2 −C)=$18,900( 50,000−C)( 1.1)+( 50,000−C)=$18,900105,000–2.1C=$18,900

After rearranging this equation, the value of consumption and saving is derived:

C = $41000

S = $9000 (= $50,000-$41000).

Therefore, a rise in expected tuition fee for next year leads to increase the saving and decrease the consumption.

f)

To determine

The change in saving and consumption when rate of interest rises from 10% to 24%.

f)

Expert Solution

Explanation of Solution

The real interest rate rises from 10% to 24%.

Y₁ = Y₂= $50,000,

X = $16800,

New rate R = 24%,

( Y 1 −C)( 1+r)+( Y 2 −C)=$16800( 50,000−C) ( 1.24)+( 50,000−C)=$16,800112,000–2.24C=$16,800

After rearranging this equation, the value of consumption and saving is derived:

C = $42500

S = $7500 (= $50,000-$42500).

Therefore, a rise in wealth leads to decrease the saving and increase the consumption.

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Answer 4

Question

Chapter 4, Problem 1NP

a)

To determine

The consumer’s saving and consumption.

a)

Expert Solution

Explanation of Solution

A consumer is making saving plans for this year and next year.

Let her income is Y, saving is S, and consumption is C, which is same in both the years.

Income in year 1 is Y₁.

Income in year 2 is Y₂.

The consumer’s saving in the 1^s^t year is Y₁-C

The consumer’s saving in second year is Y₂-C.

Saving the 1^s^t year earn interest rate R%.

Let consumer pay X amount as tuition fee.

Then, the mathematical expression for tuition fee would be:

X=(Y1−C)(1+r)+(Y2−C)

Given,

Y₁ = Y₂ = $50,000,

X = $16,800,

R = 10%,

( Y 1 −C)( 1+r)+( Y 2 −C)=$16,800( 50,000−C)( 1.1)+( 50,000−C)=$16,800( 50,000−C)( 1.1+1)=$16,800( 50,000−C)( 2.1)=$16,80050,000−C=8,000

After rearranging this equation, the value of consumption and saving is derived:

C = $42,000

S = $8,000 (= $50,000-$42000)

b)

To determine

The change in saving and consumption when consumer’s current income rises from $50,000 to $54,200.

b)

Expert Solution

Explanation of Solution

New income Y₁ = $54,200,

Y₂ = $50,000

X = $16,800,

R = 10%,

( Y 1 −C )( 1+r )+( Y 2 −C )=$16,800 ( 54,200−C )( 1.1 )+( 50,000−C )=$16,800109,620–2.1C=$16,800

After rearranging this equation, the value of consumption and saving is derived:

C = $44,200

S = $10,000 (= $54,200-$44200).

Therefore, a rise in current income decreases the saving and increases the consumption.

c)

To determine

The change in saving and consumption when consumer’s expected income rises from $50,000 to $54,200 next year.

c)

Expert Solution

Explanation of Solution

Y₁ = $50,000

New expected income, Y₂ = $54,200,

X = $16800,

R = 10%,

( Y 1 −C)( 1+r)+( Y 2 −C)=$16,800( 50,000−C)( 1.1)+( 54,200−C)=$16,800109,200–2.1C=$16,800

After rearranging this equation, the value of consumption and saving is derived:

C = $44,000

S = $6,000 (= $50,000-$44000).

Therefore, a rise in future income decreases the saving and increases the consumption.

d)

To determine

The change in saving and consumption when during the current year consumer receives an inheritance of $1050 (an increase in wealth, not income).

d)

Expert Solution

Explanation of Solution

Y₁ = Y₂ = $50,000,

X = $16,800,

R = 10%,

The amount of inheritance I = $1,050.

( Y 1 +I−C )( 1+r )+( Y 2 −C )=$16,800 ( 50,000+1,050−C )( 1.1 )+( 50,000−C )=$16,800106,155–2.1C=$16,800

After rearranging this equation, the value of consumption and saving is derived:

C = $42,550

S = $7450 (= $50,000-$42550).

Therefore, a rise in wealth leads to decrease the saving and increase the consumption.

e)

To determine

The change in saving and consumption when the expected tuition payment for next year rises from $16,800 to $18,900.

e)

Expert Solution

Explanation of Solution

Y₁ = Y₂ = $50,000,

New expected tuition payment X = $18,900,

R = 10%,

( Y 1 −C) ( 1+r)+( Y 2 −C)=$18,900( 50,000−C)( 1.1)+( 50,000−C)=$18,900105,000–2.1C=$18,900

After rearranging this equation, the value of consumption and saving is derived:

C = $41000

S = $9000 (= $50,000-$41000).

Therefore, a rise in expected tuition fee for next year leads to increase the saving and decrease the consumption.

f)

To determine

The change in saving and consumption when rate of interest rises from 10% to 24%.

f)

Expert Solution

Explanation of Solution

The real interest rate rises from 10% to 24%.

Y₁ = Y₂= $50,000,

X = $16800,

New rate R = 24%,

( Y 1 −C)( 1+r)+( Y 2 −C)=$16800( 50,000−C) ( 1.24)+( 50,000−C)=$16,800112,000–2.24C=$16,800

After rearranging this equation, the value of consumption and saving is derived:

C = $42500

S = $7500 (= $50,000-$42500).

Therefore, a rise in wealth leads to decrease the saving and increase the consumption.

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Answer 5

Chapter 4, Problem 1NP

a)

To determine

The consumer’s saving and consumption.

a)

Expert Solution

Explanation of Solution

A consumer is making saving plans for this year and next year.

Let her income is Y, saving is S, and consumption is C, which is same in both the years.

Income in year 1 is Y₁.

Income in year 2 is Y₂.

The consumer’s saving in the 1^s^t year is Y₁-C

The consumer’s saving in second year is Y₂-C.

Saving the 1^s^t year earn interest rate R%.

Let consumer pay X amount as tuition fee.

Then, the mathematical expression for tuition fee would be:

X=(Y1−C)(1+r)+(Y2−C)

Given,

Y₁ = Y₂ = $50,000,

X = $16,800,

R = 10%,

( Y 1 −C)( 1+r)+( Y 2 −C)=$16,800( 50,000−C)( 1.1)+( 50,000−C)=$16,800( 50,000−C)( 1.1+1)=$16,800( 50,000−C)( 2.1)=$16,80050,000−C=8,000

After rearranging this equation, the value of consumption and saving is derived:

C = $42,000

S = $8,000 (= $50,000-$42000)

b)

To determine

The change in saving and consumption when consumer’s current income rises from $50,000 to $54,200.

b)

Expert Solution

Explanation of Solution

New income Y₁ = $54,200,

Y₂ = $50,000

X = $16,800,

R = 10%,

( Y 1 −C )( 1+r )+( Y 2 −C )=$16,800 ( 54,200−C )( 1.1 )+( 50,000−C )=$16,800109,620–2.1C=$16,800

After rearranging this equation, the value of consumption and saving is derived:

C = $44,200

S = $10,000 (= $54,200-$44200).

Therefore, a rise in current income decreases the saving and increases the consumption.

c)

To determine

The change in saving and consumption when consumer’s expected income rises from $50,000 to $54,200 next year.

c)

Expert Solution

Explanation of Solution

Y₁ = $50,000

New expected income, Y₂ = $54,200,

X = $16800,

R = 10%,

( Y 1 −C)( 1+r)+( Y 2 −C)=$16,800( 50,000−C)( 1.1)+( 54,200−C)=$16,800109,200–2.1C=$16,800

After rearranging this equation, the value of consumption and saving is derived:

C = $44,000

S = $6,000 (= $50,000-$44000).

Therefore, a rise in future income decreases the saving and increases the consumption.

d)

To determine

The change in saving and consumption when during the current year consumer receives an inheritance of $1050 (an increase in wealth, not income).

d)

Expert Solution

Explanation of Solution

Y₁ = Y₂ = $50,000,

X = $16,800,

R = 10%,

The amount of inheritance I = $1,050.

( Y 1 +I−C )( 1+r )+( Y 2 −C )=$16,800 ( 50,000+1,050−C )( 1.1 )+( 50,000−C )=$16,800106,155–2.1C=$16,800

After rearranging this equation, the value of consumption and saving is derived:

C = $42,550

S = $7450 (= $50,000-$42550).

Therefore, a rise in wealth leads to decrease the saving and increase the consumption.

e)

To determine

The change in saving and consumption when the expected tuition payment for next year rises from $16,800 to $18,900.

e)

Expert Solution

Explanation of Solution

Y₁ = Y₂ = $50,000,

New expected tuition payment X = $18,900,

R = 10%,

( Y 1 −C) ( 1+r)+( Y 2 −C)=$18,900( 50,000−C)( 1.1)+( 50,000−C)=$18,900105,000–2.1C=$18,900

After rearranging this equation, the value of consumption and saving is derived:

C = $41000

S = $9000 (= $50,000-$41000).

Therefore, a rise in expected tuition fee for next year leads to increase the saving and decrease the consumption.

f)

To determine

The change in saving and consumption when rate of interest rises from 10% to 24%.

f)

Expert Solution

Explanation of Solution

The real interest rate rises from 10% to 24%.

Y₁ = Y₂= $50,000,

X = $16800,

New rate R = 24%,

( Y 1 −C)( 1+r)+( Y 2 −C)=$16800( 50,000−C) ( 1.24)+( 50,000−C)=$16,800112,000–2.24C=$16,800

After rearranging this equation, the value of consumption and saving is derived:

C = $42500

S = $7500 (= $50,000-$42500).

Therefore, a rise in wealth leads to decrease the saving and increase the consumption.

Answer 6

Chapter 4, Problem 1NP

a)

To determine

The consumer’s saving and consumption.

a)

Expert Solution

Explanation of Solution

A consumer is making saving plans for this year and next year.

Let her income is Y, saving is S, and consumption is C, which is same in both the years.

Income in year 1 is Y₁.

Income in year 2 is Y₂.

The consumer’s saving in the 1^s^t year is Y₁-C

The consumer’s saving in second year is Y₂-C.

Saving the 1^s^t year earn interest rate R%.

Let consumer pay X amount as tuition fee.

Then, the mathematical expression for tuition fee would be:

X=(Y1−C)(1+r)+(Y2−C)

Given,

Y₁ = Y₂ = $50,000,

X = $16,800,

R = 10%,

( Y 1 −C)( 1+r)+( Y 2 −C)=$16,800( 50,000−C)( 1.1)+( 50,000−C)=$16,800( 50,000−C)( 1.1+1)=$16,800( 50,000−C)( 2.1)=$16,80050,000−C=8,000

After rearranging this equation, the value of consumption and saving is derived:

C = $42,000

S = $8,000 (= $50,000-$42000)

Answer 7

Chapter 4, Problem 1NP

a)

To determine

The consumer’s saving and consumption.

Answer 8

a)

Expert Solution

Explanation of Solution

A consumer is making saving plans for this year and next year.

Let her income is Y, saving is S, and consumption is C, which is same in both the years.

Income in year 1 is Y₁.

Income in year 2 is Y₂.

The consumer’s saving in the 1^s^t year is Y₁-C

The consumer’s saving in second year is Y₂-C.

Saving the 1^s^t year earn interest rate R%.

Let consumer pay X amount as tuition fee.

Then, the mathematical expression for tuition fee would be:

X=(Y1−C)(1+r)+(Y2−C)

Given,

Y₁ = Y₂ = $50,000,

X = $16,800,

R = 10%,

( Y 1 −C)( 1+r)+( Y 2 −C)=$16,800( 50,000−C)( 1.1)+( 50,000−C)=$16,800( 50,000−C)( 1.1+1)=$16,800( 50,000−C)( 2.1)=$16,80050,000−C=8,000

After rearranging this equation, the value of consumption and saving is derived:

C = $42,000

S = $8,000 (= $50,000-$42000)

Answer 9

a)

Expert Solution

Answer 10

a)

Expert Solution

Answer 11

Expert Solution

Answer 12

b)

To determine

The change in saving and consumption when consumer’s current income rises from $50,000 to $54,200.

b)

Expert Solution

Explanation of Solution

New income Y₁ = $54,200,

Y₂ = $50,000

X = $16,800,

R = 10%,

( Y 1 −C )( 1+r )+( Y 2 −C )=$16,800 ( 54,200−C )( 1.1 )+( 50,000−C )=$16,800109,620–2.1C=$16,800

After rearranging this equation, the value of consumption and saving is derived:

C = $44,200

S = $10,000 (= $54,200-$44200).

Therefore, a rise in current income decreases the saving and increases the consumption.

Answer 13

b)

To determine

The change in saving and consumption when consumer’s current income rises from $50,000 to $54,200.

Answer 14

b)

Expert Solution

Explanation of Solution

New income Y₁ = $54,200,

Y₂ = $50,000

X = $16,800,

R = 10%,

( Y 1 −C )( 1+r )+( Y 2 −C )=$16,800 ( 54,200−C )( 1.1 )+( 50,000−C )=$16,800109,620–2.1C=$16,800

After rearranging this equation, the value of consumption and saving is derived:

C = $44,200

S = $10,000 (= $54,200-$44200).

Therefore, a rise in current income decreases the saving and increases the consumption.

Answer 15

b)

Expert Solution

Answer 16

b)

Expert Solution

Answer 17

Expert Solution

Answer 18

c)

To determine

The change in saving and consumption when consumer’s expected income rises from $50,000 to $54,200 next year.

c)

Expert Solution

Explanation of Solution

Y₁ = $50,000

New expected income, Y₂ = $54,200,

X = $16800,

R = 10%,

( Y 1 −C)( 1+r)+( Y 2 −C)=$16,800( 50,000−C)( 1.1)+( 54,200−C)=$16,800109,200–2.1C=$16,800

After rearranging this equation, the value of consumption and saving is derived:

C = $44,000

S = $6,000 (= $50,000-$44000).

Therefore, a rise in future income decreases the saving and increases the consumption.

Answer 19

c)

To determine

The change in saving and consumption when consumer’s expected income rises from $50,000 to $54,200 next year.

Answer 20

c)

Expert Solution

Explanation of Solution

Y₁ = $50,000

New expected income, Y₂ = $54,200,

X = $16800,

R = 10%,

( Y 1 −C)( 1+r)+( Y 2 −C)=$16,800( 50,000−C)( 1.1)+( 54,200−C)=$16,800109,200–2.1C=$16,800

After rearranging this equation, the value of consumption and saving is derived:

C = $44,000

S = $6,000 (= $50,000-$44000).

Therefore, a rise in future income decreases the saving and increases the consumption.

Answer 21

c)

Expert Solution

Answer 22

c)

Expert Solution

Answer 23

Expert Solution

Answer 24

d)

To determine

The change in saving and consumption when during the current year consumer receives an inheritance of $1050 (an increase in wealth, not income).

d)

Expert Solution

Explanation of Solution

Y₁ = Y₂ = $50,000,

X = $16,800,

R = 10%,

The amount of inheritance I = $1,050.

( Y 1 +I−C )( 1+r )+( Y 2 −C )=$16,800 ( 50,000+1,050−C )( 1.1 )+( 50,000−C )=$16,800106,155–2.1C=$16,800

After rearranging this equation, the value of consumption and saving is derived:

C = $42,550

S = $7450 (= $50,000-$42550).

Therefore, a rise in wealth leads to decrease the saving and increase the consumption.

Answer 25

d)

To determine

The change in saving and consumption when during the current year consumer receives an inheritance of $1050 (an increase in wealth, not income).

Answer 26

d)

Expert Solution

Explanation of Solution

Y₁ = Y₂ = $50,000,

X = $16,800,

R = 10%,

The amount of inheritance I = $1,050.

( Y 1 +I−C )( 1+r )+( Y 2 −C )=$16,800 ( 50,000+1,050−C )( 1.1 )+( 50,000−C )=$16,800106,155–2.1C=$16,800

After rearranging this equation, the value of consumption and saving is derived:

C = $42,550

S = $7450 (= $50,000-$42550).

Therefore, a rise in wealth leads to decrease the saving and increase the consumption.

Answer 27

d)

Expert Solution

Answer 28

d)

Expert Solution

Answer 29

Expert Solution

Answer 30

e)

To determine

The change in saving and consumption when the expected tuition payment for next year rises from $16,800 to $18,900.

e)

Expert Solution

Explanation of Solution

Y₁ = Y₂ = $50,000,

New expected tuition payment X = $18,900,

R = 10%,

( Y 1 −C) ( 1+r)+( Y 2 −C)=$18,900( 50,000−C)( 1.1)+( 50,000−C)=$18,900105,000–2.1C=$18,900

After rearranging this equation, the value of consumption and saving is derived:

C = $41000

S = $9000 (= $50,000-$41000).

Therefore, a rise in expected tuition fee for next year leads to increase the saving and decrease the consumption.

Answer 31

e)

To determine

The change in saving and consumption when the expected tuition payment for next year rises from $16,800 to $18,900.

Answer 32

e)

Expert Solution

Explanation of Solution

Y₁ = Y₂ = $50,000,

New expected tuition payment X = $18,900,

R = 10%,

( Y 1 −C) ( 1+r)+( Y 2 −C)=$18,900( 50,000−C)( 1.1)+( 50,000−C)=$18,900105,000–2.1C=$18,900

After rearranging this equation, the value of consumption and saving is derived:

C = $41000

S = $9000 (= $50,000-$41000).

Therefore, a rise in expected tuition fee for next year leads to increase the saving and decrease the consumption.

Answer 33

e)

Expert Solution

Answer 34

e)

Expert Solution

Answer 35

Expert Solution

Answer 36

f)

To determine

The change in saving and consumption when rate of interest rises from 10% to 24%.

f)

Expert Solution

Explanation of Solution

The real interest rate rises from 10% to 24%.

Y₁ = Y₂= $50,000,

X = $16800,

New rate R = 24%,

( Y 1 −C)( 1+r)+( Y 2 −C)=$16800( 50,000−C) ( 1.24)+( 50,000−C)=$16,800112,000–2.24C=$16,800

After rearranging this equation, the value of consumption and saving is derived:

C = $42500

S = $7500 (= $50,000-$42500).

Therefore, a rise in wealth leads to decrease the saving and increase the consumption.

Answer 37

f)

To determine

The change in saving and consumption when rate of interest rises from 10% to 24%.

Answer 38

f)

Expert Solution

Explanation of Solution

The real interest rate rises from 10% to 24%.

Y₁ = Y₂= $50,000,

X = $16800,

New rate R = 24%,

( Y 1 −C)( 1+r)+( Y 2 −C)=$16800( 50,000−C) ( 1.24)+( 50,000−C)=$16,800112,000–2.24C=$16,800

After rearranging this equation, the value of consumption and saving is derived:

C = $42500

S = $7500 (= $50,000-$42500).

Therefore, a rise in wealth leads to decrease the saving and increase the consumption.

Answer 39

f)

Expert Solution

Answer 40

f)

Expert Solution

Answer 41

Expert Solution

Answer 42

Ch. 4 - Prob. 1RQ Ch. 4 - Prob. 2RQ Ch. 4 - Prob. 3RQ Ch. 4 - Prob. 4RQ Ch. 4 - Prob. 5RQ Ch. 4 - Prob. 6RQ Ch. 4 - Prob. 7RQ Ch. 4 - Prob. 8RQ Ch. 4 - Prob. 9RQ Ch. 4 - Prob. 10RQ

The consumer’s saving and consumption.

The consumer’s saving and consumption.

Explanation of Solution

The change in saving and consumption when consumer’s current income rises from $50,000 to $54,200.

Explanation of Solution

The change in saving and consumption when consumer’s expected income rises from $50,000 to $54,200 next year.

Explanation of Solution

The change in saving and consumption when during the current year consumer receives an inheritance of $1050 (an increase in wealth, not income).

Explanation of Solution

The change in saving and consumption when the expected tuition payment for next year rises from $16,800 to $18,900.

Explanation of Solution

The change in saving and consumption when rate of interest rises from 10% to 24%.

Explanation of Solution

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