EBK INTERMEDIATE MICROECONOMICS AND ITS
12th Edition
ISBN: 9781305176386
Author: Snyder
Publisher: YUZU
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Question
Chapter 14, Problem 2RQ
To determine
Value of present consumption is equal to current income using inter-temporal budget constraint.
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Students have asked these similar questions
Assume an intertemporal budget constraint that shows how consumption can be traded off between two periods, t and t+1. Assume the consumer can save and borrow at the same interest rate of 10%. Assume the consumer collects income of $100 in each period. To gain an extra $10 dollars in period t+1, what must the consumer give up in period t?
11
10
1
10
U = c¹/² + Bc¹²/2 tt+1
A) Suppose that the household faces two within period budget constraints of the form:
C++ 1 = Y++1 + (1+r)s
Combine the two period budget constraints into one intertemporal budget constraint.
B) Use the intertemporal budget constraint and this utility function to derive the Euler
equation characterizing an optimal consumption plan.
C) Use this Euler equation and the intertemporal budget constraint to derive a
consumption function expressing cas a function of Y, Y₁+1, and rt.
Suppose Alice faces the following prices and income across two periods.
Prices
Income
Period
10
200
1
Period
12
2
250
Suppose the interest rate is 5%. Using the equation editor, write down the intertemporal budget
constraint for Alice.
Chapter 14 Solutions
EBK INTERMEDIATE MICROECONOMICS AND ITS
Ch. 14.3 - Prob. 1MQCh. 14.3 - Prob. 2MQCh. 14.4 - Prob. 1MQCh. 14.4 - Prob. 1TTACh. 14.4 - Prob. 2TTACh. 14.5 - Prob. 1TTACh. 14.5 - Prob. 2TTACh. 14.5 - Prob. 1MQCh. 14.6 - Prob. 1TTACh. 14.6 - Prob. 2TTA
Ch. 14.6 - Prob. 1MQCh. 14.6 - Prob. 2MQCh. 14.6 - Prob. 1.1TTACh. 14.6 - Prob. 2.1TTACh. 14 - Prob. 1RQCh. 14 - Prob. 2RQCh. 14 - Prob. 3RQCh. 14 - Prob. 4RQCh. 14 - Prob. 5RQCh. 14 - Prob. 6RQCh. 14 - Prob. 7RQCh. 14 - Prob. 8RQCh. 14 - Prob. 9RQCh. 14 - Prob. 10RQCh. 14 - Prob. 14.1PCh. 14 - Prob. 14.2PCh. 14 - Prob. 14.3PCh. 14 - Prob. 14.4PCh. 14 - Prob. 14.5PCh. 14 - Prob. 14.6PCh. 14 - Prob. 14.7PCh. 14 - Prob. 14.8PCh. 14 - Prob. 14.9PCh. 14 - Prob. 14.10P
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- Using this Intertemporal Budget Constraint how can you solve for C2 (consumption in period 2)arrow_forwardAn individual earns $100 this and $100 next year. On the diagram below, draw the person's intertemporal budget constraint assuming an interest rate of 5%. (Be sure to label the axes correctly. Put in the appropriate numerical values. Note that subscript 1 denotes this year and subscript 2 denotes next year.)arrow_forwardSuppose that y =100 (income today) • y' = 150 (income tomorrow) 10% (interest rate on bonds) %3D r = • t = 10 (taxes today) • t' = 10 (taxes tomorrow) Suppose that c = 100. Is the consumer borrowing or saving, today? And what will her budget constraint look tomorrow? The consumer is borrowing. Her budget constraint tomorrow will be c' = 150 -10 - 10*(1.1) = 129 The consumer is saving. Her budget constraint tomorrow will be c' = 150 -10 + 10*(1.1) = 151 O The consumer is neither borrowing nor saving - she is breaking even. Her budget constraint tomorrow will be c' = 150 -10 = 140 O The consumer is saving. Her budget constraint tomorrow will be c' = 150 + 10*(1.1) = 161 %Darrow_forward
- Q5) Consumption-Saving Choice Based on Abel, Bernanke and Croushore, 10th edition, Chapter 4, Numerical Problems No. 1. A consumer is making saving plans for this year and next. She knows her real income after taxes will be $50,000 in both years. Any part of her income saved this year will earn a real interest rate of 10% between this year and next year. Currently, the consumer has no wealth (no money in the bank or other financial assets, and no debts). There is no uncertainty about the future. a) Formally derive the consumer's intertemporal budget constraint. b) Using the given numerical values rewrite and graph the budget line. c) Find the consumer's PVLR.arrow_forwardQ.3.4 Year (Base year) 2018 2019 2020 2021 Cost of a basket (R) of consumer goods/services Explain, with the aid of an equation, the components of the consumption function. 1850 2190 2380 2560arrow_forwardRefer to the consumption function graph above. How much is the MPC at the disposable income of $200? Group of answer choices 0.75 cannot be determined -0.35 -0.3 -0.25 Expandius 600 500 430 400 115 330 300 240 230 200 100 0 100 200 000 G 400 500 600 4ping Line Dancearrow_forward
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- Saving $₂ S₁ Disposable Income Suppose the economy's saving schedule shifts from S₂ to S₁, as shown in the give- diagram. We can say that its A) autonomous savings has decreased at all levels of disposable income. B) MPS has decreased. C) MPS has increased. D) MPC has decreased. MacBook Proarrow_forwardConsider a two-period consumption saving model and let f1 and f2 denote the first and secondperiod consumption, respectively. Assume that the interest rate at which the consumer may lend or borrowis 10%. Suppose that a consumer’s utility function is x (f1> f2) = f1 + 20√f2= The consumer first periodincome is L1 = $100 and the present value of her income stream is $330=(a) What is the optimal consumption stream (consumption bundle) of this consumer?(b) Is this consumer borrower or lender? How much does she borrow or lend?(c) What is the effect of a reduction of the interest rate to 5% on the consumer’s optimal first-periodsaving? (Make sure to take into account the effect of the decline in the interest rate on the present value ofthe consumer’s income stream.)arrow_forward9- 9 - What is the ratio of savings to disposable income called? a) MPS B) cY NS) APS D) MRI TO) NSarrow_forward
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