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

Long-run aggregate supply curve, Suppose the potential level of real domest...

Suppose the potential level of real domestic output (Q) for a hypothetical economy is $160 and the price level (P) initially is 200. Use the following short-run aggregate supply

Balance of payment, what cause balance of payment curve to shift

what cause balance of payment curve to shift

Separation of growth and fluctuation, Separation of growth and fluctuation ...

Separation of growth and fluctuation It is very useful to separate the evolution of a variable which grows over time into a trend and fluctuations around the trend. The graphs

Liberalisation and changing sources of fdi, Liberalisation and Changing Sou...

Liberalisation and Changing Sources of FDI: European countries  had been major sources of FDI inflows  to India until 1990. However, their relative importance declined in the

GDP, according to this example,how much value do each book contribute to th...

according to this example,how much value do each book contribute to the GDP? a) a forester chop down 100 trees and sell them @$100 to the paper and pulp factotry

Factors of production, What are the 4 scarce, factors of production and wha...

What are the 4 scarce, factors of production and what is a description of each of them. What are the costs to these resources?

What are the types of market economies, There are 4 main types of market ec...

There are 4 main types of market economies. They are also called as Economic Systems. The four are Free Market, Mixed Market, Traditional and Command Economy

Leakages in multiplier, In real life, the operation of simple multiplier is...

In real life, the operation of simple multiplier is affected by many leakages. Leakages in the multiplier arise out of the following reasons: (1) Saving:  If all the income is sp

How do reductions in government spending affect the economy, Usually the go...

Usually the government is very good at wasting money and resources so less spending, by the government helps the economy as those resources are allocated in areas that are more wel

Nine patients are selected at random, A recent study in NJ showed that 50% ...

A recent study in NJ showed that 50% of all patients will return to the same dentist. Suppose nine patients are selected at random, what is the probability that: (a) exactly five o

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