consumption , Macroeconomics

. (40 points) Consider two consumers, A and B. A and B both want perfect consumption smoothing (c = cf) and both have no current wealth. However, the two consumers have different income streams. Person A’s current income, yA, = 100, and future income, yfA, = 121. Person B’s current income, yB, is 120, and future income, yfB, = is 99. The real interest rate is 10%.

(a). Calculate the present value of lifetime resources (PVLR) for consumer A and consumer B, respectively.
(b). Draw consumer A’s budget constraint. How does the budget constraint of consumer A compare to the budget constraint of consumer B? Explain.
(c). Find consumer A’s optimal lifetime consumption plan, (cA, cfA). How does consumer B’s optimal lifetime consumption plan, (cB, cfB), compare to consumer A’s lifetime consumption plan? Explain.
(d). Is consumer A a current saver or a current borrower? Explain. Is consumer B a current saver or a current borrower? Explain.
(e). Draw a graph that illustrates how an increase in the interest rate (above 0.10) will affect the budget constraints of consumer A and consumer B. How does the budget constraint of consumer A compare to the budget constraint of consumer B?
Posted Date: 10/24/2012 4:25:37 PM | Location : United States







Related Discussions:- consumption , Assignment Help, Ask Question on consumption , Get Answer, Expert's Help, consumption Discussions

Write discussion on consumption
Your posts are moderated
Related Questions
Consider the case of cleaning up chemical contamination at an industrial site. The marginal benefits of additional cleanup are decreasing as the amount of cleanup increases. Howeve

Give example to calculate the price level Imagine that we have created a particular basket of services and goods. We calculate price level at four different points in time duri

According to the imperfect-information model, when the price level is greater than the expected price level, output will _____ the natural level of output A) be greater than

1.  What is law of diminishing marginal utility? 2.  Find out the marginal utility for the following schedule of consuming pizza Pizza consumed 0

The price and quantity of lumber and other building materials has gone up recently. Show graphically and explain what might have caused this.

Suppose that the reserve requirement is 10 percent and the balance sheet of the People's National Bank looks like the accompanying example. a. What are the required reseves of P

When investment banks underwrite IPOs, they are typically sell stock for 5-10 percent more than they pay for it. When they underwrite stock for companies that are already public, t

Explain about the circular-flow of economic activities. Circular-Flow of Economic Activities: Economic Agents:    a. Households b. Firms Where they interact:

The below diagram demonstrates how all the variables are determined in classical model:  Figure: Determination of all the variables in the classical model a) Start at

For which of the following medical goods or services is the income elasticity of demand largest? a. emergency services after a car accident b. measles shots c. physical ex