Macroeconomics
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A.) An individual lives for two periods. In period 1 the individual is a student and has an income y1=$10,000. In period 2 the individual is working and earns an income y2 = $110,000. The individual can borrow and lend al the real interest rate r = 0.1. She consumes $55,000 in period 1.
a. Wrile down the inter temporal budget constraint. (3 marks)
b. How much does she consume in period 2? (2 marks)
c. Is she a borrower or a lender? (2 marks)
d. If the real interest rate should decline to 0.05, use the income and price effects to explain what will happen to consumption in period 1 and in period 2. (8 marks)
e. Suppose the interest rate is 0.1 and that the individual faces a borrowing constraint of $30,000 how much will be consumed in period 1? (4 marks)
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2.Consider the inter-temporal model of consumption studied in class, with two possible periods. A...
2.Consider the inter-temporal model of consumption studied in class, with two possible periods. Assume that initially that an individual is a saver. If the interest rate rises, which statement is false? a. The individual will never become a borrower. b.The individual will necessarily increase their savings. c.The individual must remain a saver d. The individual could increase or decrease their savings, but she must remain a saver. 4. Consider the inter-temporal model of consumption studied in class, with two possible...
Question 1. (Consumption-Saving Problem): Suppose that a consumer lives for two periods. The utility function of...
Question 1. (Consumption-Saving Problem): Suppose that a consumer lives for two periods. The utility function of the consumer is given by with u> 0 where c and c2 are consumption in period 1 and period 2 respectively. Sup- pose that consumer has income y in the first period, but has no income in the second period. Consumer has to save in the first period in order to consume in the second period. Let s be the savings in the first...
Question 1. (Consumption-Saving Problem): Suppose that a consumer lives for two periods. The utility function of...
Question 1. (Consumption-Saving Problem): Suppose that a consumer lives for two periods. The utility function of the consumer is given by with u> 0 where c and c2 are consumption in period 1 and period 2 respectively. Sup- pose that consumer has income y in the first period, but has no income in the second period. Consumer has to save in the first period in order to consume in the second period. Let s be the savings in the first...
Need answer to part b please. 2. Inter-Temporal Labor Supply Imagine an individual who lives for...
Need answer to part b please.
2. Inter-Temporal Labor Supply Imagine an individual who lives for two periods (t = 1,2) and faces a sequence of wages W, W2 that is known with certainty. The individual can borrow and save at an interest rate ofr, and has a discount factor of 0 < 1. Each period, the individual has a total time endowment of T. They do not receive any non-labor income, and they do not start life with any...
A consumer's income in the current period is y=100, and income in the future period is...
A consumer's income in the current period is y=100, and income in the future period is y' =120. He or she pays lump-sum taxes t =20 in the current period and t' =10 in the future period. The real interest rate is 0.1, or 10%, per period. Also assume that this consumer likes to consume the same amount of consumption each period, that is, c = c. Questions: a) [5 points] Calculate the lifetime wealth for this consumer. b) [4...
Question 3 John has the utility function is u(ci,C2) -c2, where c, is consumption today and c2 is consumption tomorrow. The price of consumption today is £1 and the price of consumption tomorrow...
Question 3 John has the utility function is u(ci,C2) -c2, where c, is consumption today and c2 is consumption tomorrow. The price of consumption today is £1 and the price of consumption tomorrow is p2. John gets an income of m, today and m2 tomorrow. (a) John also faces the interest rate, r. Write out John's intertemporal budget constraint in present value and future forms. (4 marks) (b) It turns out that John earns an income of £15000 today and...
Problem 1.Consider a consumer who lives for two periods. His income in period 1 equals 2000...
Problem 1.Consider a consumer who lives for two periods. His income in period 1 equals 2000 EUR and his income in period 2 equals 2500, Real interest rate equals 10% a) Use the appropriate diagram to show the consumer's intertemporal budget constraint and his consumption choice, assuming that he is a net lender in period 1 b) How will his consumption decision be affected if the interest rate increases to 20% Answr using the graph from part (a)? Will he...
Suppose that the interest rate in Hong Kong increases due to capital movement. Explain with the a...
Suppose that the interest rate in Hong Kong increases due to capital movement. Explain with the aid of a diagram, how the consumption pattern would change under the inter-temporal budget constraint (two-period model). a (12 marks)
Suppose that the interest rate in Hong Kong increases due to capital movement. Explain with the aid of a diagram, how the consumption pattern would change under the inter-temporal budget constraint (two-period model). a (12 marks)
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...
2. A consumer is making lifecycle consumption plans for two periods (this year and next year)....
2. A consumer is making lifecycle consumption plans for two periods (this year and next year). The consumer's current real income after taxes is $100,000. She knows that her real income after taxes will be $121,000 in next year. She can borrow and lend freely at an annual real interest rate of 10%. Currently, the consumer has no wealth (no money in the bank or other financial assets, and no debts). A) If the consumer wants to consume the same...
Question 1. (Consumption-Saving Problem): Suppose that a consumer lives for two periods. The utility function of the consumer is given by with u> 0 where c and c2 are consumption in period 1 and period 2 respectively. Sup- pose that consumer has income y in the first period, but has no income in the second period. Consumer has to save in the first period in order to consume in the second period. Let s be the savings in the first...
Question 1. (Consumption-Saving Problem): Suppose that a consumer lives for two periods. The utility function of the consumer is given by with u> 0 where c and c2 are consumption in period 1 and period 2 respectively. Sup- pose that consumer has income y in the first period, but has no income in the second period. Consumer has to save in the first period in order to consume in the second period. Let s be the savings in the first...
Need answer to part b please.
2. Inter-Temporal Labor Supply Imagine an individual who lives for two periods (t = 1,2) and faces a sequence of wages W, W2 that is known with certainty. The individual can borrow and save at an interest rate ofr, and has a discount factor of 0 < 1. Each period, the individual has a total time endowment of T. They do not receive any non-labor income, and they do not start life with any...
A consumer's income in the current period is y=100, and income in the future period is y' =120. He or she pays lump-sum taxes t =20 in the current period and t' =10 in the future period. The real interest rate is 0.1, or 10%, per period. Also assume that this consumer likes to consume the same amount of consumption each period, that is, c = c. Questions: a) [5 points] Calculate the lifetime wealth for this consumer. b) [4...
Question 3 John has the utility function is u(ci,C2) -c2, where c, is consumption today and c2 is consumption tomorrow. The price of consumption today is £1 and the price of consumption tomorrow is p2. John gets an income of m, today and m2 tomorrow. (a) John also faces the interest rate, r. Write out John's intertemporal budget constraint in present value and future forms. (4 marks) (b) It turns out that John earns an income of £15000 today and...
Problem 1.Consider a consumer who lives for two periods. His income in period 1 equals 2000 EUR and his income in period 2 equals 2500, Real interest rate equals 10% a) Use the appropriate diagram to show the consumer's intertemporal budget constraint and his consumption choice, assuming that he is a net lender in period 1 b) How will his consumption decision be affected if the interest rate increases to 20% Answr using the graph from part (a)? Will he...
Suppose that the interest rate in Hong Kong increases due to capital movement. Explain with the aid of a diagram, how the consumption pattern would change under the inter-temporal budget constraint (two-period model). a (12 marks)
Suppose that the interest rate in Hong Kong increases due to capital movement. Explain with the aid of a diagram, how the consumption pattern would change under the inter-temporal budget constraint (two-period model). a (12 marks)
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...
2. A consumer is making lifecycle consumption plans for two periods (this year and next year). The consumer's current real income after taxes is $100,000. She knows that her real income after taxes will be $121,000 in next year. She can borrow and lend freely at an annual real interest rate of 10%. Currently, the consumer has no wealth (no money in the bank or other financial assets, and no debts). A) If the consumer wants to consume the same...
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