Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
expand_more
expand_more
format_list_bulleted
Question
Chapter 16, Problem 3E
a)
To determine
Calculation of current consumption, future consumption, and the savings of a consumer.
b)
To determine
Change in today consumption when the stock market booms doubling the values.
c)
To determine
Change in today consumption when the housing market booms rise the equity.
d)
To determine
Change in US economy around 2007 based on the calculations.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
“Permanent Income of consumption is just the average of all current and future incomes. Thus, one does not need to do the maximisation of intertemporal utility”. True or False. Discuss according to the model. Note that you need to discuss according to the model?
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?
Q.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
2560
Chapter 16 Solutions
Macroeconomics (Fourth Edition)
Knowledge Booster
Similar questions
- APPLIED ECONOMICS Topic: Intertemporal Choice Levinn’s utility function is expressed as the following: U= C1 C2 0.3 where C1 is his first periodconsumption and C2 is his second period consumption. His income in the first period is$2500 and interest rate is at 10%. If at equilibrium, Levinn is neither a borrower nor a lender,then what is his expected income in the second period? Do not copy from othersarrow_forwardFind the disposable income when the consumption is $210 in the saving our $ 190arrow_forwardassume you are given a $100 raise, and decide to save $20 of that money. also assume that if you make zero income in a year, you will still spend $7000. a.) what is your consumption function? b.) if you earn $20000 in a year how much will you spend? c.) will you be able to save while earning the above income?arrow_forward
- APPLIED ECONOMICS Topic: Intertemporal Choice Levinn’s utility function is expressed as the following: U= C1 C2 0.3 where C1 is his first periodconsumption and C2 is his second period consumption. His income in the first period is$2500 and interest rate is at 10%. If at equilibrium, Levinn is neither a borrower nor a lender,then what is his expected income in the second period? Show the graph if possiblearrow_forwardCourse: Introduction to Microeconomics Topic: Intertemporal Consumption DecisionsA consumer makes decision to consume in this year and next year. This year she has an income of M1 = $ 1.5 million and next year her income will be M2 = $ 2.75 million. Interest rate is 10%. Her intertemporal preferences are represented by function U(c1, c2) = c1*c2, whose intertemporal marginal rate of substitution is IMRS = c2/c1.a) Find and graph Budget Constraintb) Find and graph optimal consumption basket and indicate whether the consumer SAVES or BORROWS in the FIRST YEAR.c) Indicate whether following statement is true or false: "Any increase in interest rate will cause a decrease in consumer's welfare" Justify.d) If next year's income is maintained, how much would this year's income have to be for consumer to neither save nor borrow money at 10% interest rate?e) How much would interest rate have to be for consumer to consume exactly her initial endowment (M1 = $ 1.5 million and M2 = $ 2.75…arrow_forwardA consumer's current income (y) is 200 and the future income ( t.') is 240. A current lump sum tax (t) of 10 is paid and the tax in the next period (t) is 15. The real interest rate is 20% for each period. Please assume that current and future consumption are complements. and the consumer always prefers to have one unit of current consumption and two units of consumption in the future. Calculate the optimal current and future consumption and the optimal current and future savings. Is the consumer a lender or a borrower? How does he she. as a lender or a borrower. affect the future consumption?arrow_forward
- Use the graphs to illustrate the effect of a decrease in consumer income expectations on the consumption (C) function and the savings (S) function. Real consumption 500 450 400 350 300 250 200 150 100 50 0 0 50 C = DI с 100 150 200 250 300 350 400 450 500 Real disposable income (DI) Real savings 500 450 400 350 300 250 200 150 100 50 0 -50 -100 -150 0 50 100 150 200 250 300 350 Real disposable income (DI) S 400 450 500arrow_forwardSuppose that you are a PIH consumer. You expect to live for another 24 years. You expect to work for another 19 years. You just learned that you will receive a permanent raise at your job of $1700. Answer the following: (a) How much extra do you consume this year? (b) What is your marginal propensity to consume out of this income change?arrow_forwardit is given that the ratio of APS to APC is 2/7 Calculate the ratio of Consumption to savingsarrow_forward
- Calculate the value of MPC given that:- MPS = 0.55arrow_forwardUse the two-period model from the Appendix to answer this question. Your current income is 30,000. Your next period (future) income is known to be 36,000. If your current consumption expenditure is 24,000, your (current) level of savings S = (Enter your answer as a whole number.)arrow_forwardConsider the following two-period model of consumption and saving: Utility In(C1) + In(C2) C1 C2/(1+r) Y1 + Y2/(1+r) where Y1 = 4, Y2 = 7 and r = 0.14. Find a numerical solution for period 2 consumption, C2. (State your answer to 2 decimal places.)arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
