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
Q. Describe the Keynes motivation? Keynes' motivation: In good times, when Y is high (above its trend), national income is high (above it trend). Consumers will take this opp

What are forms of price floors to lead inefficiency? Price floors frequently lead to ineffectiveness in the forms of: a. Inefficient allocation of sales in between sellers


In multiple regression analysis, before testing the significance of the individual regression coefficients, (a) the intercept must equal 0. (b) the multiple standard error of the e

Design a hypothetical ideal randomized controlled experiment to study the effects on highway traffic deaths of wearing seat belts. Suggest some impediments to implementing this exp

Consider an economy characterized by the following Cobb-Douglas production function: Y=4K 1/4 L 3/4 Where K and L represent physical capitaland labor, respectively. Assume t

Consider a market where supply and demand are given by QXS = -12 + PX and QXd = 78 - 2PX. Suppose the government imposes a price floor of $35, and agrees to purchase any and all un

list and discuss the major markets and four agents in the circular flow economic?

use a numerical example to illustrate how credit multiplier works

The consumer's utility function is u(x1,x2) = (x1) (x2)^2 (a) Graph his budget constraint for p1 = 3, p2 = 2 and M = 900, and write down the equation for his budget line. (b)