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

Name two strategies is most likely to lead to development, Explain which of...

Explain which of the two strategies is most likely to lead to development. Empirically, it seems rather evident that export-orientation has been more successful than import-sub

Nominal interest rate of 15% compounded annually, An investor has a series ...

An investor has a series of three $15,000 payments expected to be realized at the end of years three, four, and five. Calculate the present value P at time zero and the correspondi

Myth of public goods''''?, a) Summarize the basic tenets of the arguments i...

a) Summarize the basic tenets of the arguments in this case. b) Do you agree with main tenets of the arguments in the case? Why? Justify your answer with detailed explanations. s

Control of patulin, Control: In apples molded by Penicillium expansum, mos...

Control: In apples molded by Penicillium expansum, most of the patulin is confined to the region of damaged tissue and simply removing the lesions reduces the toxin by 90%, but i

Determine the economic functions of money, Determine the Economic functions...

Determine the Economic functions of money There are three functions of economics of money - A medium of exchange. - A unit of account - Store of value.

Trade barries , #discuss the arguments for and against the use of trade bar...

#discuss the arguments for and against the use of trade barries in anay counrty

Considering two types of water heaters, A company is considering two types ...

A company is considering two types of water heaters. The associated costs are shown below. The estimated annual cost of operation for oil heaters equals 365 x 41045/EF x Fuel Cost

Consumer safety and product information, Can you think of examples where th...

Can you think of examples where the government does not intervene enough when it comes to consumer safety and product information? Examples where too much intervention is the case

Exchange rate management, Exchange Rate Management: Following two  sta...

Exchange Rate Management: Following two  stage devaluation of the Indian rupee  in quick succession in July 1991, the  government introduced Liberalized  Exchange Rate System

Estimate demand or supply-equilibrium price, Suppose that the demand curve ...

Suppose that the demand curve for apples is given by Qd = 140 -  5P, where Qd is the number of pounds demanded per year and p is the price per pound. The supply of apples can be de

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