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

Explain about labor market in as-ad model, Q. Explain about Labor Market  ...

Q. Explain about Labor Market  in AS-AD model? In AS-AD model, economy will always be on the response curve - the thick line in chart below.  Figure: The labor in the

Data and methodology - macroeconomy analysis, In order to estimate the VAR,...

In order to estimate the VAR, I have firstly to specify the data which will be analysed. As it is my aim to observe the correlations between oil prices and key macroeconomic variab

What are the important aspects in tracking the macro-economy, What are the ...

What are the important aspects in tracking the macro-economy? Important aspects in tracking the macro-economy: a. How economists utilizes aggregate measures to track the pre

Expected profit or loss for the university, The enrollment in a course offe...

The enrollment in a course offered by the College of Business is random and is described by the following probability distribution: there is a 9% chance of 18 students, 22% chance

Customizing software for small construction companies, An engineer who was ...

An engineer who was in the business of customizing software for small construction companies repay a loan that she got 3 years ago at 7% per year simple interest. If the amount she

Mec, Lucas’ point of view, what are the limitations of the Keynesian model?...

Lucas’ point of view, what are the limitations of the Keynesian model? What improvements does he suggest?

Explain about price inflation, Q. Explain about Price Inflation? The ma...

Q. Explain about Price Inflation? The major reason for allowing for non-constant wages in the model is that we then can allow for persistent deflation/inflation. With constant

Equal payment amortization schedule, Assume a 5 year equal payment amortiza...

Assume a 5 year equal payment amortization schedule with an annual interest rate of 12% and annual payments. If the beginning is 8,000 then the first interest payment will be how l

Calculate the number average molecular weight, You have two bags of polymer...

You have two bags of polymer. Bag A has 10 kgs of polymer with weight average molecular weight of 336.6 kg and Bag B has 20kg of polymer with weight average molecular weight 392.7k

Online test, I would like to know if you guys take up online tests?

I would like to know if you guys take up online tests?

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