What is consumption smoothing, Accounting Basics

Assignment Help:

Note: All illegible answers will be marked incorrect, so please write legibly. If you type and submit the print out of your homework (not email), you will receive 5 points extra credit.

1. Suppose that the Bank of Canada raises the interest rate at which the average household can borrow and lend. Assume that the typical household behaves according to Irving Fisher's two-period model, that consumption in both periods is a normal good, and that households are initially borrowers. Illustrate graphically how the increase in the interest rate in period one affects consumption in both periods.

2.a. What is "consumption smoothing"? Explain what key role "consumption smoothing" plays in the life-cycle hypothesis and the permanent-income hypothesis?

b. Assume you are a twenty-five year old who expects to work for 40 years and then enjoy 30 years of retirement. If you behave according to the life-cycle/permanent-income hypothesis, how would your current consumption change if:

1. You win $1,000,000 in the lottery this year.
2. You expect to get a $1,000,000 "signing bonus" when you get a job next year


Related Discussions:- What is consumption smoothing

General Journal, Received and paid the telephone bill for $231 including GS...

Received and paid the telephone bill for $231 including GST

Gaap, Assignment on Generally Accepted Accounting Principles

Assignment on Generally Accepted Accounting Principles

Determine the terms of recording sales of merchandise, Determine the terms ...

Determine the terms of Recording sales of merchandise The SALES ACCOUNT is a temporary account with a normal credit balance. It's ONLY used to record sale of merchandise on

What is the auto invoice?, A great tool to import and certify transaction d...

A great tool to import and certify transaction data from other financial systems and make invoices debit memos credit memos and on-account credits Setup steps: 1. Describe th

Income statement, Hermann Industries is forecasting the following income st...

Hermann Industries is forecasting the following income statement: Sales $10,000,000 Operating costs (excluding depreciation and amortization) 5,500,000 EBITDA $4,500,000 Depreciati

The sneed corporation issues 10, The Sneed Corporation issues 10,000 shares...

The Sneed Corporation issues 10,000 shares of $50 par value preferred stock for cash at $75 per share. The entry to record the transaction will consist of a debit to Cash for $75

Methods be treated on the financial statements, Honesty AL, CPA, is compil...

Honesty AL, CPA, is compiling financial statement of significant accounting policies, Honesty AL discovers that the method used to value inventory in the past was stated as "invent

Prepare the journal entries, Prepare the Journal Entries Journalize th...

Prepare the Journal Entries Journalize the following business transactions in general journal form. Identify each transaction by number. You may omit explanations of the tr

Debits and Credits, When does something that is a debit becomes a credit?

When does something that is a debit becomes a credit?

On october 31 a fund accrued 2000.00 for legal fees, On october 31 A fund a...

On october 31 A fund accrued 2000.00 for legal fees. In November 2000 the fund received an invoice. for October 2008 legal fees for an amount of $2500 and paid the invoice on Nov

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