What is your consumption this year and next year

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Suppose that permanent income is calculated as the average of income over the past five years; that is

a. If you have earned $20,000 per year for the past 10 years, what is your permanent income?

b. Suppose that next year (period t 1) you earn $30,000. What is your new YP ?

c. What is your consumption this year and next year?

d. What is your short-run marginal propensity to consume? Long-run MPC ?

e. Assuming you continue to earn $30,000 starting in period t 1, graph the value of your permanent income in each period, using equation (P1).

Reference no: EM131144753

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