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 5E
a)
To determine
Equation for today and future consumption, if β ≠ 1.
b)
To determine
Equation for today and future consumption, if β = 1.
c)
To determine
Equation for today consumption, if β < 1.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
3. Assume that production function takes the form Y = (K'0.5.) + L'05))E, Show if
this production function obeys neoclassical assumptions.
4. Lets assume that the time derivative of a continuous variable Xa is defmed as
X= M+ N
where, M: and N: are also continuous variables defined by following functions:
= ek+ & M, = ek and k is a constant. Find the grow th rate of X at the steady state
in terms of k.
What is the Euler equation for consumption and what is
What is the Euler equation for consumption, and what is its economic interpretation?
What is the Euler equation for consumption and what is
In a two-period model, an individual earns and consumes C1 in period 1 and only consumes C2 in period 2. Suppose the saving interest rate is 3.3% and the income in period 1 is $4,500. Assuming consumption smoothing, the consumption (C1 or C2) for period 1 and period 2 should be $ A . Compute A.In a two-period model, an individual earns and consumes C1 in period 1 and only consumes C2 in period 2. Suppose the saving interest rate is 3.3% and the income in period 1 is $4,500. Assuming consumption smoothing, the consumption (C1 or C2) for period 1 and period 2 should be $ A . Compute A.
Chapter 16 Solutions
Macroeconomics (Fourth Edition)
Knowledge Booster
Similar questions
- these bottom two are solved I am just struggling with how to graph the consumption function and the breakeven condition for this problem and to Point out the income and consumption values relevant for these problems: 3. The marginal propensity to consume (MPC) is 0.75, which means that households spend 75% of each additional dollar of income. The starvation-level consumption is 6, which means that households will consume at least 6 dollars, regardless of their income. Therefore, the amount that households will save can be found by subtracting their minimum consumption level from their gross income, multiplying the difference by the MPC, and subtracting the lump-sum tax: Savings = (1 - MPC) * (Gross Income - Starvation-level Consumption) - Lump-sum Tax Savings = (1 - 0.75) * (40 - 6) - 10 Savings = 0.25 * 34 - 10 Savings = 1.5 Therefore, households will save $1.5. 3. a) How should the lump-sum income tax change to allow households to save 3? To allow households to save…arrow_forward“According to the Random-Walk Hypothesis of Consumption under Uncertainty, individuals don’t need to optimise their consumption over time since the consumption is totally unpredictable” True or False?arrow_forwardIdentify and briefly explain the neoclassical argument and the key building blocks of neoclassical approach. Briefly explain what is meant by the term "menu costs" from a macroeconomic perspective?arrow_forward
- Explain the term random walk in consumption. Under what conditions will consumption follow such a behaviour?.arrow_forwardAssume that that tax revenues (T) are proportional to income (Y). That means if the tax rate is equal to t, then we have T = tY.Also, consumption (C) and investment (I) functions are given as the following: C = a + b (Y – T) [where a and b are constant]I = c – dr. [where c and d are constant, and r is the interest rate] A) Find the expression of the government purchase multiplier. (Use derivative) B) What will happen to multiplier if tax rate increases? What will happen to multiplier if MPC increases?arrow_forwardConsider the following two-period consumption-saving model: Max C (BC2)}, C1,C2 subject to the following constraints Y1 = C1+S, Y2 = C2 – (1+r)S. 1. Solve for the intertemporal budget constraint 2. Draw the budget constraint (in a graph) with Y1 = 140, Y2 = 70, and r=0.25. Be sure to label the maximum values of C¡ and C2 on the y-axis and x-axis. 3. Suppose that ß = 0.8, solve for the optimal values of consumption, C and C5. %3D 4. Compare your consumption function for period 1 to a consumption function suggested by John Maynard Keynes (the so-called Keynesian consumption function). Are they different? 5. When r does down, how does C1 change? Does it increase or decrease? Show this mathe- matically. 6. Compute the marginal propensity to consume in period 1. Does this fall in the range sug- gested by Keynes?arrow_forward
- Consider the following two-period consumption-saving model: Max C (BC2)}, C1,C2 subject to the following constraints Y1 =C1+S, Y2 = C2 – (1+r)S. 1. Solve for the intertemporal budget constraint 2. Draw the budget constraint (in a graph) with Y1 = 140, Y2 = 70, and r=0.25. Be sure to label the maximum values of C¡ and C2 on the y-axis and x-axis. 3. Suppose that ß = 0.8, solve for the optimal values of consumption, C and C5. 4. Compare your consumption function for period 1 to a consumption function suggested by John Maynard Keynes (the so-called Keynesian consumption function). Are they different? 5. When r does down, how does Ci change? Does it increase or decrease? Show this mathe- matically. 6. Compute the marginal propensity to consume in period 1. Does this fall in the range sug- gested by Keynes?arrow_forwardWhat are the limitations of Samuelson general equilibrium modelarrow_forward3. Assume that production fun ction takes the form Y = (Ko.5) + L'as)e, Show if %3D this production function obeys neoclassical assumptions. 4. Lets assume that the time derivative of a continuous variable Xa is defined as X = M+ N where, M. and N are also contimuous variables defined by follow ing fun ctions: N = ek+ & M, = et and k is a constant Find the grow th rate of X, at the steadystate in terms of k.arrow_forward
- Based on our understanding of the model presented in Chapter 3, we know that an increase in c1 (where C = c0 + c1YD) will cause A) the ZZ line to become steeper and a given change in autonomous consumption (c0) to have a smaller effect on output. B) the ZZ line to become steeper and a given change in autonomous consumption (c0) to have a larger effect on output. C) the ZZ line to become flatter and a given change in autonomous consumption (c0) to have a smaller effect on output. D) the ZZ line to become flatter and a given change in autonomous consumption (c0) to have a larger effect on output.arrow_forwardThe life cycle model of consumption argues that people consume and save in different proportions as they age. Seniors tend to consume more than save as their lives adjust to the realities of old age. Assuming the hypothesis is true, how would the aging of the very large baby boomer generation affect consumption and income?arrow_forwardConsider the two-period Neoclassical growth model seen in class. Suppose that income is measured in dollars. Let the utility function take the logarithmic form U(C)=In C. Suppose that Y, = $50,000, and Y2 = $30,000, and B 1 and R= 5%. %3D B.1 What is the value of lifetime income in terms of dollars today? B.2 Compute the consumption in dollars for period 1 and period 2.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you