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According to the life-cycle/permanent income hypothesis, consumption depends on the present discounted value of income. An increase in the real interest rate will make future income worth less, thereby reducing the present discounted value and reducing consumption. To incorporate this channel into the model, suppose the consumption equation is given by: Ct = acY t − bc (Rt − r)Y t
Assume the remainder of the model is unchanged from the original set-up.
a) Derive the IS curve for this new specification.
b) How and why does it differ from the original IS curve? (Hint: think about the slope).
In this island economy, the (a) Orange Grove Owner likes only bananas and the (b) Banana Grower only likes Chocolate. Furthermore, the (c) Chocolate Maker only likes Oranges. Explain how trade between these three producers can occur. Will the Orange ..
Assume an American company sells $10 million in goods to a German firm. The American company will receive less than $10 million in revenues if (assume no transactions to prevent exchange rate risk):
What are the benefits and challenges when implementing Industrial policy? How does comparative advantage relate the implementation of industrial policy?
Do not conduct an economic analysis of the legal process (i.e. whether it is efficient to appeal the case). Focus on the economic analysis of the tort case at hand.
Consider an economy described by the following equations: Y= C+I+G, Y= 5,000, G= 1,000, T= 1,000, C= 250 + 0.75(Y-T), I= 1,000 -50r. In this economy, compute private saving, public saving, and national saving.
Which of the following statements are true of using a first-come, first-served basis to distribute goods? Check all that apply. Which system for allocating goods provides the best incentives to allocate goods from lower-valued uses to higher-values u..
Marco borrowed $ 24,491 from a bank at an interest rate of 9 % compounded monthly to. The loan will be repaid in equal monthly instalments over 3 years. What is the remaining lump sum after 28 instalments?
Explain in words and in diagrams how a tax on high-skilled labor burdens low- skilled workers. Which of the following taxes do you think would cause the larger excess burden? In one or two sentences explain why?
Suppose that inverse demand is given by D(Q) = 56 − 2Q, Q = q1 + q2 and the cost function is TC(qi ) = 20qi + f (a) Find the limit output for fixed costs ( f ) equal to 50, 32, 18, and 2. (b) What is the SPNE for the entry game with the following tim..
this leads to an increase in demand for apple sauce from 100 to 140 jars, what is the cross price elasticity of apple sauce and pork chops at a pork chop price of $6?
Are you for or against free trade Are you for or against NAFTA What is the economic basis for trade Explain the underlying facts that support free trade and give an example of a good that you purchased recently that is based on resource difference..
For each of the following situations, decide whether the bundle Lakshani is considering optimal or not. If it is not optimal, how could Lakshani improve her overall level of utility? That is, determine which good she should spend more on and which go..
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