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
What is uses of Purchases journal Purchases journal (SPECIAL JOURNAL) Used to record only credit purchases of merchandise-may be only one column which is posted to two accou

Q. Explain about Merchandise inventory? Merchandise inventory is the quantity of goods assumed by a merchandising company for resale to customers. Merchandising companies verif

A company’s sales volume averages 4,000 units per year.  Recently, its main competitor reduced the price of its product to $48.  The company expects sales to drop dramatically


Employees : The view of business organizations exist to maximize the go back to shareholders has been undergoing modify as an outcome of social changes. A broader view is consider

Explain the term- CASH SHORT AND OVER This account is used to record both a shortage and overage of cash in cash drawer. When change is made during a business day, mistakes can

Q. What do you mean by Not-for-profit organizations? Not-for-profit organizations such like charities, fraternities, churches, and universities need accountants to record and a

Q. What is trial balance? The firm credits two Accounts Payable and accounts Cash in this one entry. But the dollar totals of the debits and credits are equal. Cyclically accou

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

is money deposited to the municipality for electricity current assets