When analyzing how borrowing and lending affect the consumer's budget constraint, we measure spending in the current time period on the horizontal axis and spending in the future time period on the vertical axis. Assume that the interest rate at which the consumer can lend and borrow is 10%, income in period 1 is $1000 and income in period 2 is $1200. The point of maximum current consumption can be expressed as 1000+ 1200/1.1. 1000(1.1) + 1200. 1000+ 1200 +.1 1000/1.1 + 1200/1.1 +1.
Q: Fill in the aggregate saving column in the following table. (Include a minus sign if necessary.)…
A: Consumer demand and consumption have historically fueled the American economy. When American…
Q: Assume Peter's preferences over time (periods are yearly) are given by U(c1, C2, C3, C4, -...) =…
A: The utility function is a key concept in economics that quantifies preferences across a range of…
Q: The table gives disposable income (DI), consumption (C), and savings (S) data for the country of…
A: The sum of marginal propensity to consume and marginal propensity to save is equal to 1. Income is…
Q: An individual has preferences over contingent consumption in two states of nature {a, b}, given by u…
A: Optimal consumption point for a consumer optimizing its utility over consumption is two states…
Q: Marginal propensity to save is: A total saving divided by total income. B the change in…
A: Marginal propensity to saving (MPS) refers to the additional saving due to increase the level of…
Q: In the Euler's Equation representation of the PI-LC model of consumption in two time periods, if the…
A: Introduction: Tintner (1937) is the first to use the word "Euler equation" in text-searchable JSTOR,…
Q: Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at banks.…
A: Investment is the source of demand for loanable funds. Saving is the source of supply of loanable…
Q: Consider the following 2-period model with optimal saving. U(C1,C2) = 3 ln(C1) + 2 ln(C2) Y1 = 60…
A: please find the answer below.
Q: At the end how many months did the value of the savings bond first begin to exceed the value of the…
A: 750(1+0.03)^x > 1000+25x
Q: How do changes in interest rate affect expected consumption? Interprete the effect of interest rate…
A: Precautionary Savings: This is a part of saving that is saved for consumption or use at a time of…
Q: At the beginning of the year, Savannah had $30 in savings and saved an additional $16 each week…
A: Savings is that part of income left after consumption expenditure and other obligations are deducted…
Q: Assume an economy with 600 consumers. Each consumer has income in the current period of 70 units and…
A: Dispsable income is the income available to the consumers after paying the taxes and social security…
Q: Q1 4. Suppose you earn same income as one of your cousins but expect to live longer than your…
A: Since you have asked multiple questions, we will solve the first question for you. If you want any…
Q: Is the statement below true, false or uncertain? Explain your answer. Note: Include a diagram as…
A: Interest Rate refers to the cost of borrowing or the return on lending of money. It is basically the…
Q: Imagine an investor who has money to invest and two alternative investment possibilities, asset A or…
A: Formula: Expected rate of return =( Expected value - Current value) / (Current value) * 100
Q: Is the statement below true, false or uncertain? Explain your answer. Note: Include a diagram as…
A: Given information When interest rate is 10% --- Asha is borrower When interest rate is 20% --- Asha…
Q: In Irving Fisher’s two period model, if the consumer is initially a saver and the interest rate and…
A: The income effect is generally the change in the level of consumption of a particular item or…
Q: Samantha Smoothie’s utility function is U(c1, c2) = c1c2, where c1 is her consumption in period 1…
A: Two Period of consumption model: There are two periods, i.e., 1 and 2 c1 -> consumption in period…
Q: A consumer receives income y in the current period and income y' in the future period, and pays…
A: Budget Constraint A budget limitation is the total number of products you can buy with the money you…
Q: Steve has the utility function U(ci, c2) = c + 2c/where ci is his consumption in period 1 and ci is…
A: We have interest rate =0.1 and utility function is an interteporal utility function.
Q: Households' consumption function is: C=100+0.7Y Households are more pessimistic about the future and…
A: "In the consumption function C=100+0.7Y, 100 represents the consumption function intercept and 0.7…
Q: Tolga has no income in period 1 (consumption now) and an income of 1300Ł in period 2 (consumption…
A: Given Tolga has no income in period 1. Income of 1300L in period 2. Interest rate = 30% = 0.3.
Q: Consider the results in Table 3. What is the predicted home size of a household composed of 5…
A: The predicted home size of a household composed of 5 members, renting, and with annual net income…
Q: Suppose Eleanor is a sports fan and buys only baseball caps. Eleanor deposits $3,000 in a bank…
A: The equation of Fisher is a mathematical association that links the nominal and real rate of…
Q: According to the basic discounting principle, individuals value current consumption (i.e.…
A: Discounting would tend render costs and benefits that would occur during different time periods…
Q: Which of the following is the recommended guideline for the maximum amount to borrow in order to…
A: We are going to discuss the correctness of guidelines to decide the limit of borrowing by keeping…
Q: Suppose Van would like to use $9,000 of his savings to make a financial investment. One way of…
A: Answer: Suppose RoboTroid , a robotics firm , is selling bonds to raise money for a new lab, a…
Q: Consider the household model that you have seen in class but now assume that the goal of the…
A: Consumption: It refers to the amount of goods and services people will consume. The more the…
Q: Suppose that the government creates a disincentive for private saving by increasing the tax that…
A: When there is an increment in taxes takes place there will be a decrease in real income that can be…
Q: Use the two-period model from the Appendix to answer this question. Your current income is 40,000.…
A: Income earned is either consumed or saved so income is equal to the sum of consumption and saving.
Q: An investment tax credit effectively lowers the tax bill of any firm that purchases new capital in…
A: A tax credit is given by the government to business or consumers to reduce the amount of taxes owed.…
Q: Saving in the economy Multiple Choice Occurs when current spending is less than current incomes. and…
A: Saving=Income-consumption From the above equation, we can say that the saving occurs when the…
Q: Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of…
A: The equilbrium in the loanable funds market depends on the demand and supply of the loanable funds.…
Q: In an intertemporal optimizing model consumption, a consumer living from time zero (0) to time t has…
A: The intertemporal optimal model is a hypothesis that states that people must choose between…
Q: Assume an intertemporal budget constraint that shows how consumption can be traded off between two…
A: We are going to use the concept of the present value of the extra amount to be received in the next…
Q: Refer to the figure below. +16 +12 +8 Consumption Investment is more volatile than consumption.…
A: Introduction In the above diagram consumption and investment spending has given from 2000 - 08. a)…
Q: Consider the following 2-period model U(C1,C2) = min{3C1,4C2} C1 + S = Y1 – T1 C2 = Y2 – T2 + (1+r)S…
A: Considering the model: C1 +S = Y1-T1C2 = Y2-T2 + (1+r) S Taking the value of S from C2 &…
Q: Assume Peter's preferences over time (periods are yearly) are given by U(c1, C2, C3, C4, · ...) =…
A: Consumption refers to the amount of goods and services purchased and used by an individual during a…
Q: Find the value of MPC if the value of the MPS is given as 0.33
A:
Q: Refer to Figure 13-1 above. Ceteris paribus, a decrease in interest rates would be represented by a…
A: People are more likely to borrow money to make large purchases, such as houses or vehicles, if the…
Q: Calculate the optimal current and future consumption and the optimal current and future savings. Is…
A: Consumption and savings are the functions of income. Consumers will always try to increase their…
Q: 5. The market for loanable funds and government policy The following graph shows the market for…
A:
Q: Scenario 1: Individual Retirement Accounts (IRAS) allow people to shelter some of their income from…
A: There are various factors that affect the demand and supply of loanable funds.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
- If C = 32 + 0.90Y, how much would an individual save when income is 953? Select one: O a. 63.30 О Б.-825.7О О с. 889.70 O d. 825.70A 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?Consumption/Savings 1000 800 600 400 200 0 -200 Select one: 200 400 600 800 1000 1200 1400 1600 S Refer to the graph above to answer this question. What is the equation for the saving function? A. S=200+ 0.4Y. B. S=-200+ 0.6Y. X C. S-200+ 0.8Y. OD. S-200 +0.2Y. OE. S=200 - 0.2Y. Income
- 7. A student decides to save money for a trip to Uluru. She opens a savings account with $300, and sets up a daily automatic transfer of 2 from her regular account into her savings account. The bank pays 5.5% interest per year into her savings account, compounded continuously. The student plans to withdraw the money from the bank at the end of two years. She is, however, worried that she isn't saving enough, and decides to model the problem to find out how much she will have at the end of two years. Let M(t) be the amount of money in her savings account at time t. She opens the account at time t 0. Assume that one year has 365 days. (a) Her first model is the following, with time in years: dM dt = 0.06M + 2, M(0) = 300. A friend of hers tells her that there is a problem with this model. What is the prob- lem? (b) She realizes where she went wrong, and fixes her model. There are two standard ways to fix it, using time in years or using time in days. Make a choice, and fix the model. (c)…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 2560Consider the intertemporal consumption problem of Mr Cronus between two periods, say this yearand next year. His utility function takes the form U (c1; c2) = pc1 +0:97pc2, where c1 and c2 arehis consumption this and next year respectively. It can be shown (and you do not have to) thatthis utility function satis es diminishing marginal rate of substitution.His yearly income is stable at 100 unit (let say a unit is ten-thousand). He faces di¤erent interestrates between borrowing and saving. Speci cally, the saving interest rate is 0:02, whereas theborrowing interest rate is 0:04.(a) Describe the budget set facing Mr Cronus.(b) Is Mr Cronus a borrower? Explain your answer.(c) Is Mr Cronus a saver? Explain your answer.
- Suppose 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 %DQUESTION 1An individual lives for two periods and decides how much to consume in each period.- In the first period his consumption equals C1 and his income Y1 = 200- In the second period his consumption equals C2 and his income Y2 = 100He can save or borrow money in the first period to finance his consumption in the second period.The interest rate he gets in case he saves or has to pay in case he borrows money equals 7%.Determine the budget constraint of this individual. C2 = −0.935·C1 +314C2 =−1.07·C1 +314C2 =−0.8·C1 +314C2 =−1.08·C1 +314 QUESTION 2The total production of a good y is determined by the production function y = 3L2/3K1/3, where L is labour input and K capital input.The reward (factor prices) for labour and capital are, l = 27 en r = 2, respectively.The producer needs to produce 9000 units of good y.How much units of labour will he hire if he wants to miminize his total costs? 1587,4839,953000515,23 QUESTION 3A good is traded on a perfectly competitive…Consider 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.)
- Suppose the real interest rate is 0%. Daniel worked for 60 years and he retired for 20 years. When Daniel had a job, his annual income was $10,000. During retirement, the annual pension he received was $6,000. Suppose Daniel smoothed consumption completely. What was the amount of savings Daniel had when he retired? O $16,000 O $120,000 $600,000 $60,000Suppose that a person can borrow and lend at an interest rate of 10 percent. But there is a 5% rate of inflation and one has to pay an income tax of 30 % on all interest income. If you borrow money, you can deduct interest as an expense. Where current consumption is on the horizontal axis and future consumption is on the vertical axis: (a) the budget line will have a kink at the point of no saving or lending. (b) the budget line will be a straight line with a slope of about 1: 02. (c) the budget line will be a straight line with a slope of about 1:05. (d) the budget line will be a straight line with a slope of about 1:35.Assume there are no investment projects in the economy that yield an expected rate of return of 25 percent or more. But suppose there are $10 billion of investment projects yielding expected returns of between 20 and 25 percent; another $10 billion yielding between 15 and 20 percent; another $10 billion yielding between 10 and 15 percent; and so forth. a. Cumulate these data and present them graphically using the graph below, putting the expected rate of return (and the real interes rate) on the vertical axis and the amount of investment on the horizontal axis. Instructions: Use the tool provided 'ID' to plot the investment demand curve (plot 6 points total). 30 Tools ID 20 15 10 10 20 30 40 50 60 Investment (billions of dollars) Instructions: Enter your answers as a whole number. b. What will be the equilibrium level of aggregate investment if the real interest rate is: 15 percent: $ billion 10 percent: $ billion 5 percent: $ billion Expected rate of return, percent 25