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

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

Comparative advantage in cars and in rice, Suppose that in the United State...

Suppose that in the United States a car can be produced with 200 labor hours, while a ton of rice requires 20 labor hours. In Japan, it takes 150 labor hours to make a car and 50 l

Explain herzbergs factor theory of motivation, Question 1: "Motivation ...

Question 1: "Motivation denotes to the degree of readiness of an organism to pursue some designated goal and implies the evaluation of the nature and locus of the forces, inclu

Federal and state taxing-tax-exempt, Please select either question (a) or q...

Please select either question (a) or question (b).  Do NOT answer both questions. a.  Mr. William Randolph Hearst is an entrepreneur based in California.  He owns many newspaper

Planning activities, What are the different stages of analysis in planning ...

What are the different stages of analysis in planning activities?

Increase in income, How does an increase in income affect a consumer's budg...

How does an increase in income affect a consumer's budget line and their total utility?

Determine about the interest rates, Determine about the interest rates ...

Determine about the interest rates The interest rate may be fixed or floating. If it is fixed, you will pay the same percentage for the entire duration of the loan. With a floa

IS LM curve, example on the calculation of IS LM Curve?

example on the calculation of IS LM Curve?

Explain about the circular-flow of economic activities, Explain about the c...

Explain about the circular-flow of economic activities. Circular-Flow of Economic Activities: Economic Agents:    a. Households b. Firms Where they interact:

Determination of factor prices by supply and demand, DETERMINATION OF FACTO...

DETERMINATION OF FACTOR PRICES BY SUPPLY AND DEMAND   Let us suppose that perfect competition prevails in the goods and the factor markets. In such a situation let us see how th

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