consumption , Macroeconomics

Assignment Help:
. (40 points) Consider two consumers, A and B. A and B both want perfect consumption smoothing (c = cf) and both have no current wealth. However, the two consumers have different income streams. Person A’s current income, yA, = 100, and future income, yfA, = 121. Person B’s current income, yB, is 120, and future income, yfB, = is 99. The real interest rate is 10%.

(a). Calculate the present value of lifetime resources (PVLR) for consumer A and consumer B, respectively.
(b). Draw consumer A’s budget constraint. How does the budget constraint of consumer A compare to the budget constraint of consumer B? Explain.
(c). Find consumer A’s optimal lifetime consumption plan, (cA, cfA). How does consumer B’s optimal lifetime consumption plan, (cB, cfB), compare to consumer A’s lifetime consumption plan? Explain.
(d). Is consumer A a current saver or a current borrower? Explain. Is consumer B a current saver or a current borrower? Explain.
(e). Draw a graph that illustrates how an increase in the interest rate (above 0.10) will affect the budget constraints of consumer A and consumer B. How does the budget constraint of consumer A compare to the budget constraint of consumer B?

Related Discussions:- consumption

Keynesian theory, what is static and dynamic multiplier in keynesian theory...

what is static and dynamic multiplier in keynesian theory?

Difference between sampling error and standard error, Which is not true of ...

Which is not true of the difference between sampling error and standard error? a. Standard error is a difference from the population. b. Sampling error can't usually be calcula

Determine the current in the neutral conductor, A 415V, 3-phase, 4 wires, s...

A 415V, 3-phase, 4 wires, star-connected system supplies three resistive loads as shown in Figure. Determine (a) The current in each line and (b) The current in the neutr

Welfare economic, Write the compensation principal of socitovsky

Write the compensation principal of socitovsky

Explain ad-curve at a given point in time, AD-curve, just like before, disp...

AD-curve, just like before, displays combinations of Y and P where both goods market and money market are in equilibrium. At any given instance, even when we have inflation, aggreg

Difference between a normal good and an inferior good, Price/Feeder Quantit...

Price/Feeder Quantity Demanded Quantity Supplied $300 500 1800 270 600 1700 240 700 1600 210 800 1500 180 1000 1400 150 1100 1300 120 1200 1200 90 1300 1100 60 1400 1000 30 1500 90

How unemployement increases by firm relocating production, How unemployemen...

How unemployement increases by firm relocating production If unemployment increases in a specific city because of a firm relocating production, it's structural unemployment tha

Economics, Ask question #Minimum 100 words accepted I need help with homew...

Ask question #Minimum 100 words accepted I need help with homewok

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd