The consumer’s saving and consumption.

Question

Want to see more full solutions like this?

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.

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!

Students have asked these similar questions

6. Rent seeking The following graph shows the demand, marginal revenue, and marginal cost curves for a single-price monopolist that produces a drug that helps relieve arthritis pain. Place the grey point (star symbol) in the appropriate location on the graph to indicate the monopoly outcome such that the dashed lines reveal the profit-maximizing price and quantity of a single-price monopolist. Then, use the green rectangle (triangle symbols) to show the profits earned by the monopolist. 18 200 20 16 16 14 PRICE (Dollars per dose) 12 10 10 8 4 2 MC = ATC MR Demand 0 0 5 10 15 20 25 30 35 40 45 50 QUANTITY (Millions of doses per year) Monopoly Outcome Monopoly Profits Suppose that should the patent on this particular drug expire, the market would become perfectly competitive, with new firms immediately entering the market with essentially identical products. Further suppose that in this case the original firm will hire lobbyists and make donations to several key politicians to extend its…

Consider a call option on a stock that does not pay dividends. The stock price is $100 per share, and the risk-free interest rate is 10%. The call strike is $100 (at the money). The stock moves randomly with u=2 and d=0.5. 1. Write the system of equations to replicate the option using A shares and B bonds. 2. Solve the system of equations and determine the number of shares and the number of bonds needed to replicate the option. Show your answer with 4 decimal places (x.xxxx); do not round intermediate calculations. This is easy to do in Excel. A = B = 3. Use A shares and B bonds from the prior question to calculate the premium on the option. Again, do not round intermediate calculations and show your answer with 4 decimal places. Call premium =

Answer these questions using replication or the risk neutral probability. Both methods will produce the same answer. Show your work to receive credit. 6. What is the premium of a call with a higher strike. Show your work to receive credit; do not round intermediate calculations. S0 = $100, u=2, d=0.5, r=10%, strike=$150

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.

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 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.

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 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.

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 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

Want to see more full solutions like this?

Chapter 4 Solutions