Homework Answers
Answer 8 (c) (1 + r)we
- If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest, the vertical (future consumption) intercept of the consumer's budget line is equal to (1 + r)we
- If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest, the horizontal (current consumption) intercept of the consumer's budget line is equal to we
- If the interest rate increases, lifetime wealth (we) decrease.
Answer 9 ( c ) optimum current consumption is greater than current disposable income.
- A consumer is a lender if optimum current consumption is less than current disposable income.
Answer 10 ( a) the more current consumption the consumer has, the less future consumption she is willing to give up for one more unit of current consumption.
A diminishing marginal rate of substitution implies that
- increasing amounts of one good and as he gives up greater and greater of the other good to still at the same utility level.
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Question 8 (1 point) If we represents a two-period consumer's lifetime wealth and r denotes the...
Question 1 (1 point) If we represents a two-period consumer's lifetime wealth and r denotes the...
Question 1 (1 point) If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest, the slope of the consumer's budget line is equal to Or (1+we) O-1/(1+r) Orxwe. -(1+r) O-r/(1+we) Question 2 (1 point) Intertemporal decisions are economic decisions O involving trade-offs across periods of time. O made in between two periods of time. that ignore concerns about the future. that are made only once. O made within a given period of time. Question...
1. If we=1,000 represents a two-period consumer's lifetime wealth and r=0.05 denotes the real rate of...
1. If we=1,000 represents a two-period consumer's lifetime wealth and r=0.05 denotes the real rate of interest, the slope of the consumer's budget line is equal to Question 12 options: a. -1.05 b. 50.05 c. -0.95 d. -0.00005 e. 50 2. Suppose that the utility function of the consumer is U(c,c’)=ln(c) + b ln( c’ ) . Analyze the solution of the model to show show that optimal consumption increases over time when Question 3 options: a. b > 1...
Question 1 (1 point) (1 Point) We assume that the representative consumer's preferences exhibit the properties...
Question 1 (1 point) (1 Point) We assume that the representative consumer's preferences exhibit the properties that Oa) they evolve over time and that more is always preferred to less. Ob) more is sometimes preferred to less and that consumption and leisure are both normal goods c) more is preferred to less and that the consumer prefers diversity d) the consumer likes diversity and that more is sometimes preferred to less. Question 2 (1 point) (1 Point) A good is...
Question 16 1 pts A typical indifference curve is negatively sloped because: as we consume more...
Question 16 1 pts A typical indifference curve is negatively sloped because: as we consume more of one good, we are willing to give up the consumption of another good without changing our utility higher indifference curves represent higher levels of utility higher indifference curves represent lower levels of utility we assume that a consumer's income is constant Question 17 1 pts A typical indifference curve: O is convex to the origin (bowed in) has a constant slope is concave...
Question 1 (3 Points): Assume a consumer has current-period income y = 120, future-period income y'...
Question 1 (3 Points): Assume a consumer has current-period income y = 120, future-period income y' = 140, current and future taxes t = 20 and t' = 10, respectively, and faces a market real interest rate of r = 0.08, or 8% per period. The consumer has the following preferences over current and future consumption: U(c, c') = min(4c, 3c'). a) (1 points) Determine the consumer's lifetime wealth. b) (2 points) Determine what the consumer's optimal current-period and future-period...
In the two-period model, we normally graph the consumer's indifference curve in the C-C'axis. Question: Explain...
In the two-period model, we normally graph the consumer's indifference curve in the C-C'axis. Question: Explain why the shape of the indifference curve can explain the desire of a consumer to smooth consumption over time. (Hint: If it helps, you can start by thinking of the shape of the curves when c=c' which are an extreme case.)
Question 9 1 pts Logan Roy is spending all his money income by buying mineral water...
Question 9 1 pts Logan Roy is spending all his money income by buying mineral water and popcorn. At his current consumption level, the marginal utility of mineral water is 70 and the marginal utility of popcorn is 60. The price of a bottle of mineral water is $2.00 and the price of a box of popcorn is $1.50. The utility-maximizing rule suggests that Logan should: O Increase consumption of popcorn and increase consumption of mineral water Decrease consumption of...
2 Two Period Model of Consumption/Saving Decisions with Taxes (8 points) Assume a consumer who has...
2 Two Period Model of Consumption/Saving Decisions with Taxes (8 points) Assume a consumer who has current period income y200, future period income y-150, current taxes t = 40, and future taxes t' 50, and faces a market interest rate of r-5 percent or .05. The consumer would like to consume such that e'=e*(1+r) if possible. However, this consumer is faced with a credit market imperfection, in that no borrowing is allowed. That is s must be greater or equal...
1. Consider the following two period consumption savings problem. A consumer cares about consumption (c and...
1. Consider the following two period consumption savings problem. A consumer cares about consumption (c and future consumption c according to Assume that U(c) is given by for some constant y. In the present the consumer chooses how much to consume and how much to save out of her income y>0 This decision is made in the knowledge that in the future she will be retired, have no income, and thus future consumption will be entirely out of savings: c)a,...
3. A consumer lives for two periods. His income in period 1 is Y, and his...
3. A consumer lives for two periods. His income in period 1 is Y, and his income in period 2 is Y.,. The consumer is free to lend and borrow at zero interest rate (r=0 and R=1+r=1). Y, = Y, = 10. (a) What is the price of consumption in period 1 in terms of consumption in period 2? (How many units of period 2 consumption must the consumer give up to get an additional unit of consumption in period...
Question 1 (1 point) If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest, the slope of the consumer's budget line is equal to Or (1+we) O-1/(1+r) Orxwe. -(1+r) O-r/(1+we) Question 2 (1 point) Intertemporal decisions are economic decisions O involving trade-offs across periods of time. O made in between two periods of time. that ignore concerns about the future. that are made only once. O made within a given period of time. Question...
Question 1 (1 point) (1 Point) We assume that the representative consumer's preferences exhibit the properties that Oa) they evolve over time and that more is always preferred to less. Ob) more is sometimes preferred to less and that consumption and leisure are both normal goods c) more is preferred to less and that the consumer prefers diversity d) the consumer likes diversity and that more is sometimes preferred to less. Question 2 (1 point) (1 Point) A good is...
Question 16 1 pts A typical indifference curve is negatively sloped because: as we consume more of one good, we are willing to give up the consumption of another good without changing our utility higher indifference curves represent higher levels of utility higher indifference curves represent lower levels of utility we assume that a consumer's income is constant Question 17 1 pts A typical indifference curve: O is convex to the origin (bowed in) has a constant slope is concave...
Question 1 (3 Points): Assume a consumer has current-period income y = 120, future-period income y' = 140, current and future taxes t = 20 and t' = 10, respectively, and faces a market real interest rate of r = 0.08, or 8% per period. The consumer has the following preferences over current and future consumption: U(c, c') = min(4c, 3c'). a) (1 points) Determine the consumer's lifetime wealth. b) (2 points) Determine what the consumer's optimal current-period and future-period...
In the two-period model, we normally graph the consumer's indifference curve in the C-C'axis. Question: Explain why the shape of the indifference curve can explain the desire of a consumer to smooth consumption over time. (Hint: If it helps, you can start by thinking of the shape of the curves when c=c' which are an extreme case.)
Question 9 1 pts Logan Roy is spending all his money income by buying mineral water and popcorn. At his current consumption level, the marginal utility of mineral water is 70 and the marginal utility of popcorn is 60. The price of a bottle of mineral water is $2.00 and the price of a box of popcorn is $1.50. The utility-maximizing rule suggests that Logan should: O Increase consumption of popcorn and increase consumption of mineral water Decrease consumption of...
2 Two Period Model of Consumption/Saving Decisions with Taxes (8 points) Assume a consumer who has current period income y200, future period income y-150, current taxes t = 40, and future taxes t' 50, and faces a market interest rate of r-5 percent or .05. The consumer would like to consume such that e'=e*(1+r) if possible. However, this consumer is faced with a credit market imperfection, in that no borrowing is allowed. That is s must be greater or equal...
1. Consider the following two period consumption savings problem. A consumer cares about consumption (c and future consumption c according to Assume that U(c) is given by for some constant y. In the present the consumer chooses how much to consume and how much to save out of her income y>0 This decision is made in the knowledge that in the future she will be retired, have no income, and thus future consumption will be entirely out of savings: c)a,...
3. A consumer lives for two periods. His income in period 1 is Y, and his income in period 2 is Y.,. The consumer is free to lend and borrow at zero interest rate (r=0 and R=1+r=1). Y, = Y, = 10. (a) What is the price of consumption in period 1 in terms of consumption in period 2? (How many units of period 2 consumption must the consumer give up to get an additional unit of consumption in period...
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