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

Determining the lm curve, This problem revolves around determining the LM c...

This problem revolves around determining the LM curve, as we did earlier in the term such that money demand (M D ) equals money supply (M S ), however in this instance under differ

Business Cycle, casual factors of the traditional business cycle and its ef...

casual factors of the traditional business cycle and its effect on sectors of the economy?

Income and substitution effects of a price change, Income and Substitution ...

Income and Substitution Effects of a Price Change Indifference curve analysis can be used to separate the income effect (IE) from substitution effect (SE). This is shown in Fig

Utility maximisation - graphical presentation , Utility Maximisation: ...

Utility Maximisation: Graphical Presentation  Let consider a two-commodity world, x 1 and x 2 representing good I and good II respectively. p 1 and p 2 are the prices o

Ana, how long will it take for you to help me with assignment

how long will it take for you to help me with assignment

Foreign trade, how can a country maintain equilibrium GDP with foreign trad...

how can a country maintain equilibrium GDP with foreign trade?

#title.national income ddetermkination, explain how national income is dete...

explain how national income is determined under the following economies; 1.frugal economy 2.governed economy

Underwrite stock for companies, When investment banks underwrite IPOs, they...

When investment banks underwrite IPOs, they are typically sell stock for 5-10 percent more than they pay for it. When they underwrite stock for companies that are already public, t

Demand for running shoes is highly inelastic, Assume that the demand for ru...

Assume that the demand for running shoes is highly inelastic and the supply curve for running shoes is highly elastic. Suppose that the tastes of the exercising public shift away f

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