Consider the lifecycle model of labour supply with multiple periods. Assume that the utility function in each period is the same thus preferences for leisure and consumption are constant over time. Individuals aim to maximise lifetime utility and are able to save and borrow. If individuals know that the wage in period 1 (w1) will be lower than the wage in period 2 (w2), we expect that they will work [Select] hours in This bab

Consider the lifecycle model of labour supply with multiple periods. Assume that the utility function in each period is the same thus preferences for leisure and consumption are constant over time. Individuals aim to maximise lifetime utility and are able to save and borrow. If individuals know that the wage in period 1 (w1) will be lower than the wage in period 2 (w2), we expect that they will work [Select] hours in This bab

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.1P

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JosephmigratedtoCanadafromGhana5yearsago.Hecurrently works in sales but is considering quitting work for two years to earn an MBA degree. His current job pays $40,000 per year (after taxes), but he could earn $55,000 per year (after taxes) if he had an MBA. Tuition is $10,000 per year, and the cost of an apartment near campus is equal to the $10,000 he is currently paying. His discount rate is 6 percent per year. He just turned 48 and plans to retire when he turns 60, whether or not he earns his MBA degree. Based on this information, should he go for an MBA degree? Explain carefully with appropriate calculations.
In a consumption-leisure model, where P is the price of consumption and w is the wageand h is the hours, how do I mathematically calculate the effect of wage jncrease (wage/price of good) on the ff: >consumption>leisure>hours worked How do I know which is stronger between income effect and substitution effect due to increase in w/p? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
Consider a 2-period economy in which Yt = AtKt. The households start with aquantity a1 > 0 of initial assets and maximize lifetime utility given a per-periodutility function u(c) = ln (c).1. Do households earn any labor income? Solve the household’s Euler Equa-tion. 2. Solve the firms’ problem. Is the production function constant returns toscale? Do firms make any profits?3. Define an equilibrium for this economy.4. Solve for the equilibrium of this economy. Solving for the equilibriummeans finding the value of all equilibrium objects as a function of theparameters of the model: A1, A2, α, β, δ, a15. Assume that A1 = Ab1 = 1 and A2 = 1. What is rb1 equal to?6. Assume that A1 = As1 = 1 −∆ and A2 = 1. What is rs1 equal to?7. What is the percentage difference between As1 and Ab1 ? That is, find thevalue of x such that As1 = (1 + x) Ab1. What is the percentage differencebetween rb1 and rs1 ? How do these two differences relate to each other andwhat does this connection remind you of?
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Consider a forward-looking individual who aims at maximizing her lifetime utility from her lifetime resources. Assume the initial endowment of the individual isand her expected labour income is in the sequence Her utility function takes the form where is consumption in period and . Assume the real interest rate, is constant but not equal to the discount rate . Suppose that this individual lives for two periods, write down her intertemporal budget constraint and carefully interpret it. Explain why the lifetime budget constraint must be satisfied with a strict equality. From the intertemporal budget constraint, derive the permanent income hypothesis (PIH) and explain the drivers of consumption growth in this model.
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Longer retirements. People are living longer than ever before. However, the retirement age in most countries remains mostly unchanged. Consider the consequences of this change in the following OLG economy where people live three periods. Assume that people work in the first period and earn labour income At wt and live off of their savings plus interest income in periods two and three. The household utility maximization problem is given by Max U = InC1,t + BlnC2,t+1+B² InC3,t+2 s.t. C₁,t + St Atwt, C2₁t+1+St+1 = (1 + rt+1) St, C3,t+2 = (1 + rt+2) St- = A. Write out the lifetime budget constraint of the household. B. Write out the Lagrangian for the household utility maximization problem.
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