Original feasible frontier when individual has a job during months 1-6 and months 7-12 IC, IC, New feasible frontier when individual loses her job in months 7-12 and collects unemployment benefits in months 7-12 Y X A Consumption, Income now (in months 1-6) What is the value of Y on the graph? What is the value of D on the graph? What would have been the value of consumption now and consumption later if the individual was NOT able to collect unemployment benefits while being unemployed during months 7-12? Consumption, Income later (in months 7-12)

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Original feasible frontier when individual has
a job during months 1-6 and months 7-12
В
Y
IC,
IC2
New feasible frontier when individual loses
her job in months 7-12 and collects
unemployment benefits in months 7-12
Y X
A
Consumption, Income now (in
months 1-6)
What is the value of Y on the graph? What is the
value of D on the graph? What would have been
the value of consumption now and consumption
later if the individual was NOT able to collect
unemployment benefits while being unemployed
during months 7-12?
Consumption, Income later (in
months 7-12)
Transcribed Image Text:Original feasible frontier when individual has a job during months 1-6 and months 7-12 В Y IC, IC2 New feasible frontier when individual loses her job in months 7-12 and collects unemployment benefits in months 7-12 Y X A Consumption, Income now (in months 1-6) What is the value of Y on the graph? What is the value of D on the graph? What would have been the value of consumption now and consumption later if the individual was NOT able to collect unemployment benefits while being unemployed during months 7-12? Consumption, Income later (in months 7-12)
During the Great Recession of 2008,
unemployment reached its highest point in the US
at 10.6%. In 2009, the Obama Administration
extended unemployment benefits to individuals
who lost their jobs. For the following question,
consider two time periods: months 1-6 in 2009
and months 7-12 in 2009. Define months 1-6 as
“now" and months 7-12 as "later" in the two time
period model learned in the course. Suppose that
the interest rate is 4%, that the individual prefers to
perfectly smooth consumption between time
periods, and that the individual enters 2009 with
$3000 in cash that she plans to spend in months
1-6 and/or months 7-12.
Suppose that the individual works and earns a
yearly salary of $50,000. She has a job during
months 1-6 of 2009, but her job is terminated at
the end of month 6. Suppose that the individual
remains unemployed during months 7-12 but she
is able to receive six months of unemployment
benefits in months 7-12. The unemployment
benefits give a total of $500 per week for 26
weeks. The figure below denotes what happens to
the individual's feasible frontier as a result of the
individual losing her job at the end of month 6 and
then collecting unemployment benefits in months
7-12.
Transcribed Image Text:During the Great Recession of 2008, unemployment reached its highest point in the US at 10.6%. In 2009, the Obama Administration extended unemployment benefits to individuals who lost their jobs. For the following question, consider two time periods: months 1-6 in 2009 and months 7-12 in 2009. Define months 1-6 as “now" and months 7-12 as "later" in the two time period model learned in the course. Suppose that the interest rate is 4%, that the individual prefers to perfectly smooth consumption between time periods, and that the individual enters 2009 with $3000 in cash that she plans to spend in months 1-6 and/or months 7-12. Suppose that the individual works and earns a yearly salary of $50,000. She has a job during months 1-6 of 2009, but her job is terminated at the end of month 6. Suppose that the individual remains unemployed during months 7-12 but she is able to receive six months of unemployment benefits in months 7-12. The unemployment benefits give a total of $500 per week for 26 weeks. The figure below denotes what happens to the individual's feasible frontier as a result of the individual losing her job at the end of month 6 and then collecting unemployment benefits in months 7-12.
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