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 the gaap-determine the impairment loss, Panzer is a U.S. company.  ...

Panzer is a U.S. company.  It originated in the 1970s as a family-owned business that manufactures fine watches. The family continued to build the company by reinvesting profits in

Tax-deductible and interest rate, Suppose that Lilistan has two types of ci...

Suppose that Lilistan has two types of citizens: low-income citizens (income = $20,000) and high-income citizens (income = $80,000). Interest income is currently taxed and each typ

What are the economic reasons for protectionism, Question 1: (a) What ...

Question 1: (a) What are the characteristics of market and command economies? (b) In a number of countries in recent years, there has been a movement towards a greater rel

calculate the marginal revenue of demand graph, Gas Guzzler Motors is one ...

Gas Guzzler Motors is one of three major auto producers. It is currently producing 6,000 cars a day, and selling them at a price of $10,000 each. Its marketing department tells it

Staic general equilibrium model, given the consumer maximizing problem subj...

given the consumer maximizing problem subjest to consumption, the firm''s maximizing problem subject to revenue as a function of labour demand, and the government''s budget as G=T.

#title.Functions of money., #qDiscuss the functions of money Illustrate you...

#qDiscuss the functions of money Illustrate your answeruestion..

Advantages of leaving resource allocation, What are the advantages of leavi...

What are the advantages of leaving resource allocation to price allocation? Ans) The 5 benefits are Neutral, Flexible, Freedom of choice, No administrative cost and lastly Dimin

Benefits and disadvantages of each scenario, Do you think that public admin...

Do you think that public administrators should be restricted to only laid down rules in the discharge of their duties as espoused by Max Weber or should they have some amount of di

Determine velocity approach to money demand, Determine Velocity Approach to...

Determine Velocity Approach to Money Demand. The Velocity Approach to Money Demand: The velocity of money: V = (P × Y)/ M The real quantity of money demanded is pr

What is the value of the swap in terms of both bonds and fra, Suppose that ...

Suppose that the yield curve is flat at 5% per annum with continuous compounding. A swap with a notional principal of $100 million in which 6% is received and six-month LIBOR is pa

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