Suppose that permanent income is calculated as the average of income over the past five years; that is, YP = 1/5( Y + Y-1 + Y-2 + Y-3 + Y-4 ) (P1) Suppose further that consumption is given by C = .9 YP. a. If you have earned $20,000 per year for the past 10 years, what is your permanent income? b. Suppose that next year (period t + 1) you earn $30,000. What is your new YP ?

U(C1, C2) = c₁0.8 20.4 where c₁ is the quantity of current consumption goods and c₂ is the quantity of future consumption goods. Consider a consumer whose income is y₁ = 100 in the current period and y₂ = 140 in the future period. The consumer pays lump-sum taxes t₁ and t₂ == = 20 in the current period 10 in the future period. The real interest rate is r = 0.1, or 10%, per period. (a) Write down the consumer's budget constraint for each period and derive the consumer's lifetime budget constraint. What is the value of the consumer's lifetime wealth? [Note: Lifetime wealth is the present value of the consumer's lifetime disposable income] (b) Draw the lifetime budget line on the (C1, C2) plane with c₁ on the horizontal axis and C₂ on the vertical axis. Include the values of the intercepts and the endowment point in your graph. What is the slope of the budget line? (c) What are the two conditions that the consumer's optimal choice of (C1, C2) must satisfy? Find the consumer's optimal…

What is the formula for calculating Net Present Value (NPV)? a) NPV = Total Revenue - Total Costs b) NPV = Total Costs - Total Benefits c) NPV = Initial Investment - Total Revenue d) NPV = Total Benefits - Initial Investment

Refer to the below figure: the saving function can be given as: Aggregate consumption (C) 270 200 130 60 450 100 S = -60 -0.3Y O S = -60+ 0.3Y O S = 60+ 0.7Y O S = -60 -0.7Y O S = -60 +0.7Y 200 300 Aggregate income (Y)