Consider the behaviour of hypothetical individual

Assignment Help Business Economics
Reference no: EM13886960

a) Let's use the model of inter temporal consumption choice to consider the behaviour of a hypothetical individual. This person is not liquidity constrained and is endowed with an exogenous amount of income in each of the current and the future periods. Assume the person must pay an income tax; that is assume he must pay fraction t of his income in the form of tax.es. Thus if he has of Y dollars then his tax bill is tY dollars and his after-tax income is (1-t)Y dollars. Use the model as an aid to showing that if it is announced the income tax rate imposed on income will increase at some point in the future, this will influence current consumption expenditures. As always, your diagram should be large, neatly drawn, well-labelled and fully explained.

b) On the basis of your answer to part (a), speculate on what this suggests for how and when policy-makers make announcements of policy changes.

c) Suppose you win $100,000. What does the permanent income hypothesis suggest will happen to your consumption spending? Explain.

Reference no: EM13886960

Questions Cloud

Student commission on programming and entertainment : 1.At a local university, the Student Commission on Programming and Entertainment (SCOPE) is preparing to host its first rock concert of the school year.
Define the crisis what is the crisis event that you are deal : Define the crisis. What is the crisis event that you are dealing with and what is the impact that it may have on the organization
Assume that the interest rate : Assume that the interest rate is 10%. Explain whether you would prefer to receive (a) $ 75 one year from now, (b) $ 85 two years from now, or (c) $ 90 three years from now? Would your answer change if the interest rate is 20%? Show how you arrive at ..
What is hyperinflation : What is hyperinflation? Explain some factors that were responsible for the Zimbabwean hyperinflation of the late 2000s. In 2009, Zimbabwe ended its hyperinflation by adopting the U.S. dollar as legal tender. What potential problem(s) could this strat..
Consider the behaviour of hypothetical individual : Let's use the model of inter temporal consumption choice to consider the behaviour of a hypothetical individual. This person is not liquidity constrained and is endowed with an exogenous amount of income in each of the current and the future periods.
Which the sound pressure level is already designed : Sound pressure level (SPL) is an important parameter for the sound engineers. Often the designs of the architects are verified for the feasibility and the acceptance of the sound pressure.
Walt considers x and y to be perfect substitutes : Walt considers x and y to be perfect substitutes. They originally cost $10 and $9 respectively. His income is $720. One day the price of x drops to $8.
Discusses monetary policy : Find an article (newspaper, magazine, or online) that discusses monetary policy. Use the article to answer the following questions. 1. The article indicates what monetary instrument(s) is/are being used by the central monetary authority? 2. Which ins..
What is your treatment plan : What is your treatment plan? What else would you have liked to know about this patient, which was not given to you in the case scenario, and you think it may have been very useful in order to reach a diagnosis and develop a treatment plan

Reviews

Write a Review

 

Business Economics Questions & Answers

  Acceptability of dollar bills as a medium of exchange

The attribute that distinguishes money from other assets is that only money. What determines the acceptability of dollar bills as a medium of exchange? When economists refer to the role of money as a standard of deferred payment, they mean that

  Supposed short run inverse demand in a monopolistically

supposed short run inverse demand in a monopolistically competitive market is represented by px18-0.2x. cost is given

  The standard model is plastic and has no scrap value

The 16 overhead doors on your loading dock must be replaced now . The deluxe model costs $2,200 for each door and will last for six years. The standard model costs $1,600 for each door and will last for four years. The deluxe model is aluminium so it..

  Monetary aggregate of extensive financial innovation

The impact on this monetary aggregate of extensive monetary aggregate of extensive financial innovation - the changes in the kinds of deposits and services offered by banks- led the central bank to drop M1 as an intermediate target. What impact would..

  What price-output combination would exist with efficient

What price-output combination would exist with efficient pricing (MC = P)? Draw a graph with MC, Demand curve and MR curves for the problem above.

  What is your annual effective interest rate

If you have a credit card with 14.4% APR. What is your monthly interest rate and what is your annual effective interest rate? If you have an outstanding balance of $1,800 on that card what would be the balance if you skipped 4 months payments (ignore..

  Evalute one opportunity for kuddler fine foods

Evalute one opportunity for Kuddler Fine Foods that requires a business management decision.

  The marginal cost is rising and the averger variable cost

In a short-run production process, the marginal cost is rising and the averger variable cost is falling as output is increased. thus

  Multiple regression model with three independent variables

Consider the multiple regression model with three independent variables, under the classical linear model assumptions MLR.1 through MLR.6: Let ˆ1 and ˆ2 denote the OLS estimators of 1 and 2. Find Var(ˆ1 3ˆ2) in terms of the variances of ˆ1 and ˆ2 and..

  Assume that consumer has the utility function

Assume that a consumer has the utility function U(x,y) = (3x+1)y, where x and y represent the quantities of two goods, X and Y. For parts (a)-(h), assume that good X costs pX=$3 per unit and good Y costs pY=$4 per unit. “Wealth” and “income” have the..

  Illustrate what is the total contribution to gdp

The university bookstores received 4 million euros from students in exchange for the books. Illustrate what is the total contribution to GDP from the above events.

  The comparative advertising wars

When thousands of products and their prices are at stake, does it make sense that comparative advertising at the store level be permitted? Based on what you read and any further research you choose to do, has Wal-Mart competed fairly with its compara..

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