What is consumption smoothing, Accounting Basics

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

Posted Date: 3/13/2013 1:26:06 AM | Location : United States







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

Write discussion on What is consumption smoothing
Your posts are moderated
Related Questions
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 cr

John Bentley is the chief financial officer for World Auto Parts Corporation the company buys approximately USD 500 million of auto parts every year from small suppliers all over t

Accounting is frequently termed as the language of business. The fundamental function of any language is to function like a means of communication. In this circumstance, the reason

What is the implication of applying accounting concepts wrongly

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

Q. Explain about Stockholders equity? Stockholders' equity demonstrates the owners' interest in the business. This interest is equivalent to the amount contributed plus the inc

The owner's equity of Logan's company is equal to one quarter of the total assets. Liabilities equal $60,000. What is the amount of owner's equity?

A bond sinking fund investment is started on January 5, 2010, by transferring $10,000 in cash to the fund. This $10,000 is invested and earns $1,100 during 2010. The entry to rec

AsCompare and contrast AICPA SSTS to Circular 230 related to knowledge of client''s omission.k question #Minimum 100 words accepted#

Liquid Extracts Company makes a line of fruit extracts for home use in making wine, jams and jellies, pies and meat sauces.  Fruits enter the production process in pounds; the prod