## Calculate permanent income, Basic Statistics

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Suppose that permanent income, YP(t) is calculated as the average of disposable income (YDt) over the past 5 years, that is:

YP(t) = 0.2(YDt + YDt-1 + YDt-2 + YDt-3 YDt-4)

Suppose further that consumption is given as

C = 0.9 YP(t)

a.  If you earned \$20,000 per year for the past 10 years, what is your permanent income?

b.  Suppose that next year, (t + 1), you earn \$30,000.  What is you new permanent income?

c.  What is your consumption this year and next year (i.e., Ct and Ct + 1)?

d.  What is your short-run (1-year) and long-run MPC?

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