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

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.

Capital output ratio, Ask question #impotance of capital output ratio#

Ask question #impotance of capital output ratio#

Determination of gdp in the cross model, Q. Determination of GDP in the cro...

Q. Determination of GDP in the cross model? In the cross model, GDP is determined as the solution to the equation Y D (Y) = Y We may explain

Social cohesion and increase the scope, "International bodies such as the a...

"International bodies such as the aced argue that more unequal income and wealth distribution erode social cohesion and increase the scope for internal conflict."

Types of market, #five differnces between a monopoly market and a monopolis...

#five differnces between a monopoly market and a monopolistic market

International trade, developing countries benefit through international tra...

developing countries benefit through international trade from developed countries

Crowding out is associated, Crowding out is associated with: A. an increase...

Crowding out is associated with: A. an increase in business investment resulting from an increase in government borrowing and higher interest rates. B. an increase in private savin

Protectionisms, definition, argument to protectionism and argument against ...

definition, argument to protectionism and argument against protectionisms

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