ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
Bartleby Related Questions Icon

Related questions

Question

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.
Now suppose Kenji can earn 50% real interest on any money he saves.
Use the blue line (circle symbol) to plot his new budget constraint (BC₂) on the previous graph. Then use the grey point (star symbol) to plot his
optimum consumption bundle at this interest rate. (Hint: To plot BC₁, think about how much money Kenji would have next year if he saved his
entire income this year.)
Using the previous graph, complete the following table by indicating how much Kenji should save of his current income when he cannot earn any
interest on his savings and when he can earn 50% interest on his savings.
Interest Rate Amount Kenji Saves
(Percent)
(Dollars)
0
50
Which of the following statements is a good description of the results of this exercise, as well as its implications for broader consumer behavior?
All consumers, including Kenji, save less money when interest rates are high, because they don't need to save as much money to have
the same future income.
In this case, Kenji saves more money when interest rates are high. However, consumers with different preferences might save less money
when interest rates are high.
In this case, Kenji saves less money when interest rates are high. However, consumers with different preferences might save more money
when interest rates are high...
O All consumers, including Kenji, save more money when interest rates are high, because they get a higher return on that investment.
expand button
Transcribed Image Text:Now suppose Kenji can earn 50% real interest on any money he saves. Use the blue line (circle symbol) to plot his new budget constraint (BC₂) on the previous graph. Then use the grey point (star symbol) to plot his optimum consumption bundle at this interest rate. (Hint: To plot BC₁, think about how much money Kenji would have next year if he saved his entire income this year.) Using the previous graph, complete the following table by indicating how much Kenji should save of his current income when he cannot earn any interest on his savings and when he can earn 50% interest on his savings. Interest Rate Amount Kenji Saves (Percent) (Dollars) 0 50 Which of the following statements is a good description of the results of this exercise, as well as its implications for broader consumer behavior? All consumers, including Kenji, save less money when interest rates are high, because they don't need to save as much money to have the same future income. In this case, Kenji saves more money when interest rates are high. However, consumers with different preferences might save less money when interest rates are high. In this case, Kenji saves less money when interest rates are high. However, consumers with different preferences might save more money when interest rates are high... O All consumers, including Kenji, save more money when interest rates are high, because they get a higher return on that investment.
12. Savings decisions
Kenji is a researcher who teaches classical mechanics at a university where he earns an annual salary of $160,000. He intends to take the next year
off to focus on writing a new undergraduate physics textbook, so he will not earn any Income next year. He is currently deciding how much of this
year's salary he should save for next year. Assume that there are no tax implications associated with the decision, and ignore what happens after next
year. Therefore, next year Kenji will consume whatever he saves this year plus interest, and he is not concerned with the future beyond next year.
The following graph shows Kenji's preferences for consumption this year and next year. Suppose Initially Kenji cannot earn interest on the money he
saves.
Use the green line (triangle symbol) to plot Kenji's budget constraint (BC1) on the following graph. Then use the black point (plus symbol) to show
his optimum consumption bundle.
Note: Dashed drop lines will automatically extend to both axes.
CONSUMPTION NEXT YEAR (Thousands of dollars)
288 289 288 89 R
240
220
200
100
100
140
120
100
00
60
0
0
20 40 60 80 100 120 140 160 180 200 220 240
CONSUMPTION THIS YEAR (Thousands of dollars)
BC, (0% Interest)
Initial Optimum (0% Interest)
-0-
BC, (50% interest)
New Optimum (50% interest)
?
expand button
Transcribed Image Text:12. Savings decisions Kenji is a researcher who teaches classical mechanics at a university where he earns an annual salary of $160,000. He intends to take the next year off to focus on writing a new undergraduate physics textbook, so he will not earn any Income next year. He is currently deciding how much of this year's salary he should save for next year. Assume that there are no tax implications associated with the decision, and ignore what happens after next year. Therefore, next year Kenji will consume whatever he saves this year plus interest, and he is not concerned with the future beyond next year. The following graph shows Kenji's preferences for consumption this year and next year. Suppose Initially Kenji cannot earn interest on the money he saves. Use the green line (triangle symbol) to plot Kenji's budget constraint (BC1) on the following graph. Then use the black point (plus symbol) to show his optimum consumption bundle. Note: Dashed drop lines will automatically extend to both axes. CONSUMPTION NEXT YEAR (Thousands of dollars) 288 289 288 89 R 240 220 200 100 100 140 120 100 00 60 0 0 20 40 60 80 100 120 140 160 180 200 220 240 CONSUMPTION THIS YEAR (Thousands of dollars) BC, (0% Interest) Initial Optimum (0% Interest) -0- BC, (50% interest) New Optimum (50% interest) ?
Expert Solution
Check Mark
Knowledge Booster
Background pattern image
Economics
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:9780190931919
Author:NEWNAN
Publisher:Oxford University Press
Text book image
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Text book image
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Text book image
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Text book image
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Text book image
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education