Calculate present value of lifetime resources for consumer

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Reference no: EM132200942

Question: A consumer is making saving plans for this year and next. His real income in the current period is y=120, and income in the future period is yf=131. He pays taxes t=20 in the current period and tf=10 in the future period. Any part of income saved this year will earn a real interest rate of 10% between this year and next year. Currently, the consumer has no wealth (no money in the bank or other financial assets, and no debts). There is no uncertainty about the future. The consumer wants to enjoy exactly the same amount of consumption this year and next year and have neither assets nor debts at the end of next year.

(a) Calculate the present value of lifetime resources (PVLR) for this consumer.

(b) Draw this consumer's budget constraint.

(d) Is this consumer a current saver or a current borrower? Explain.

(e) Now suppose that consumer's income y=141. How does this affect the amounts that the consumer should save and consume?

Reference no: EM132200942

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