Permanent Income, Macroeconomics

Assignment Help:
5. In this question you should assume that the Marginal Propensity to Consume out of permanent income is one [i.e., no bequest motive + perfect consumption smoothing: c1, = c2 = c3]. Consider the following disposable (i.e., after tax) income stream: yt = 100, yt+1 = 160, yt+2 = 120.

a) What is the wealth of this individual if r = 1.06? Show your work.

b) If r = 1.06 and if permanent income (yp) is the constant income stream with the same present value as the actual income stream, calculate yp. Show your work.

c) Suppose that income rises by 10 in each period. By how much will consumption rise in each period?

d) Suppose that income rises by 10 in the current period only. By how much will consumption rise in each period?

e) Calculate the Marginal Propensity to Consume out of current disposable income for parts c and d. How do you explain the difference?

Related Discussions:- Permanent Income

What are the main aspects of globalisation, What are the main aspects of gl...

What are the main aspects of globalisation Two of the other main aspects of globalisation are greater international mobility of capital and to some extent of labour. Globalisa

Production possibilities, you and your neighbor (n) consume without trading...

you and your neighbor (n) consume without trading. suppose you are initially consuming 7 bananas and 3 coconuts and your neighbor is initially consuming 6 bananas and8 coconuts. Yo

Circular flow of income in a simple economy income consumed, The circular f...

The circular flow of income in a simple economy where all income is consumed  The operation of forces in an economy can be expressed in the form of a circular flow of incomes a

What are the production elasticities of demand, The following Cobb-Douglas ...

The following Cobb-Douglas production function is used to describe the output generated by a local government maintenance agency. Q = αL β1 K β2 E β3 Where L represents numb

Equilibrium in money markets, Equilibrium in Money Markets Having dealt...

Equilibrium in Money Markets Having dealt with the forces that determine the supply of money and demand for money, let us combine supply of and demand for money to determine eq

Production manager for widgets, Suppose you are the production manager for ...

Suppose you are the production manager for Widgets, Inc. Your job is to produce a fixed amount of output at the lowest cost possible. When you take over the position, you find that

Lower price in restaurant, A restaurant/bar is analyzing its pricing of bee...

A restaurant/bar is analyzing its pricing of beer. It has determined that the price elasticity of demand for beer is 0.8, the cross-price elasticity for wine with respect to the pr

Explain fines imposed on violations, In 2001, Puerto Rico enacted a law tha...

In 2001, Puerto Rico enacted a law that requires specific labels on cement sold in Puerto Rico and imposes fines for any violations of these requirements. The law prohibits the sal

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