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

Institutional mechanisms for promotion of fdi, INSTITUTIONAL MECHANISMS FO...

INSTITUTIONAL MECHANISMS FOR  PROMOTION OF FDI: There is  increasing recognition that  understanding  'the forces of economic globalisation requires taking  a look  at  foreig

What causes a demand curve to shift, What causes a demand curve to shift? ...

What causes a demand curve to shift? a. Changes into the Prices of Related Goods Substitutes Complements b. Changes into Income Normal Goods Inferio

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

Effects of fiscal policy, (Effects of Fiscal Policy) Recently some legislat...

(Effects of Fiscal Policy) Recently some legislators have called for tax increases to reduce the federal budget deficit. Conservatives have countered that such tax increases could

Enumerate in detail about the financial markets, The Government, Rest of th...

The Government, Rest of the World and the financial markets Total expenditure of the government may be divided into two parts: transfers to the private sector and consumpti

Increases in the price of gasoline over the past few years, How have you re...

How have you responded to increases in the price of gasoline over the past few years? How would you respond if the price of gasoline doubled over the next two years? What alternati

Ricardian model, a) There is a general trade, and sometimes prominent as in...

a) There is a general trade, and sometimes prominent as in case of UK, Canada, and Europe. When the tariff rates are showing an upward trend, the trade/GDP ratio is either declinin

Monetary policy, what is the importance of credit multiplier

what is the importance of credit multiplier

Marginal propensity to save, Marginal Propensity to save  (MPS)  is the r...

Marginal Propensity to save  (MPS)  is the ratio of change in total saving to change in total disposable income. Symbolically,     MPS = ?S/?Y For example, total

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