Qssume that we have a expenditure function of the form c

Assignment Help Business Economics

Reference no: EM13352877

Q. Assume that we have a expenditure function of the form C = 220 + 0.9×Yp, where Yp is permanent disposable income. Suppose that consumers estimate their permanent disposable income by a simple average of disposable income in the present and previous years:
Yp== 0.5×(Yd + Yd-1), where Yd is actual disposable income.
a. Suppose that disposable income Yd is equal to $4,000 in year 1 and is also equal to $4,000 in year 2. Illustrate the consumption in year 2?
b. Suppose that disposable income increases to $5,000 in year 3 and then remains at $5,000 in all future years. What is consumption in years 3 and 4 and all remaining years?
Illustrate why expenditure responds way it does to an increase in income.
c. Illustrate the short-run marginal propensity to consume? What is the long -run marginal propensity to consume?
d. Explain why this formulation of consumption may provide a more accurate description of consumption than the simple consumption function that depends only on current income.

Reference no: EM13352877

Questions Cloud

1 explain the difference between the stackelburg and the : 1. explain the difference between the stackelburg and the cournot duopoly models. outline the process by which a

Q 1 what contact does natural capital have on economic : q. 1. what contact does natural capital have on economic growth? will it be probable for a country through few natural

Q1 imagine the diameter of the field of vision in your : q1. imagine the diameter of the field of vision in your microscope is 2 mm under low power. if one bacillus cell is 2um

Q1 explain all key structures you pass by or through you : q1. explain all key structures you pass by or through. you arrive at lung explain what you see and narrate how body

Qssume that we have a expenditure function of the form c : q.assume that we have a expenditure function of the form c 220 0.9timesyp where yp is permanent disposable income.

Q1 johnny a five-year-old boy has been growing by leaps and : q1. johnny a five-year-old boy has been growing by leaps and bounds his height is 100 percent above normal for his age.

Q1 imagine that the cross is made between aabb and aabb : q1. imagine that the cross is made between aabb and aabb plants and that the offspring fall into approximately equal

Q1 complete a chart by identifying six actions that reduce : q1. complete a chart by identifying six actions that reduce the risk of infection and strengthen the bodys immune

Q1 assume that the rate of sea-floor spreading was constant : q1. assume that the rate of sea-floor spreading was constant during the 1-million-year period depicted above what have

User Account

All Pages