The Consumption Function
In-Class Workheet II: The Consumption Function
Above is a graphical representation of the (our) consumption function:
1) Properly label the axes.
2) Apply the following (consumption) function: C=Co + bYd.
3) Decompose the function from question 2.
4) With the above diagram how would you "show" a:
a. ΔYd:
b. Δb:
c. ΔCo
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1. Consider a variant of the two-period model of consumption-saving behavior. In this version of the...
1. Consider a variant of the two-period model of consumption-saving behavior. In this version of the model, the consumer has income y in the first period and no income in the second period. Her life-time budget constraint is c+ a - 1+r = y. (a) Draw this budget constraint in a diagram with con horizontal axis and d on vertical axis. What are the slope and vertical intercept of this budget constraint? Label the endowment point in the diagram. (3...
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...
Please answer question a Question 2: The consumption function with taxes that change over time To...
Please answer question a
Question 2: The consumption function with taxes that change over time To do this question you need to be familiar with the Appendix to chapter 4, which deals with the determination of the two period consumption and is on the class website (see OnQ). Households must decide how much they wish to spend on consumption today ((1+1Jel) versus consumption in the future (0+τ)G), where t is the rate of taxation on consumption (HST). Households are constrained...
A consumer has the utility function U(X, Y) = (X + 2)(Y + 4). Her income is...
A consumer has the utility function U(X, Y) = (X + 2)(Y + 4). Her income is $100, the price of X is $4, and the price of Y is $5. In order to maximize utility subject to her budget constraint, how many units of X and Y will our consumer choose to purchase? Sketch a budget line – indifference curve diagram illustrating this optimum. Label this optimum A. Suppose the price of X increases to $8, while income and the price...
In a simple economy (assume there are no taxes, thus Y is disposable income) the consumption...
In a simple economy (assume there are no taxes, thus Y is disposable income) the consumption function is C = 400 +0.75Y 2800- In this economy, the level of income at which the consumer breaks even (consumption equals income) is 24004 20004 1.) Using the point drawing tool, identify the breakeven income/consumption point that you found above 2) Using the line drawing tool, carefully graph the consumption function Properly label your line. Carefully follow the instructions above, and only draw...
Denise has utility over consumption c and leisure l defined by the following function: U(c, l)...
Denise has utility over consumption c and leisure l defined by the following function: U(c, l) = c + l a) Suppose Denise has two units of consumption and three units of leisure. What is her utility? b) Suppose Denise has four units of consumption and one unit of leisure. What is her utility? c) Graph her indifference curves. Draw at least three separate indifference curves, for U = {2, 4, 6}. Label your axes accordingly.
I don't know how to solve (e) 1. The AE diagram below shows the consumption function...
I don't know how to solve (e)
1. The AE diagram below shows the consumption function of an economy, Each box is $20x$20 Distance between 45 degree line and consumtion curve is equal to saving, Distance between 45 degree line and AE curve is equal to unplanned inventory change. 45° (a) What are the MPC, MPS, and multiplier? **** (b) What are the savings when Y=200, 400, 600? 160+ 1001 100 400 (c) What are the consumption function and saving...
question 4 4. This question concerns how the consumption function affects the analysis of the loanable...
question 4
4. This question concerns how the consumption function affects the analysis of the loanable funds market. Suppose consumption depends on the interest rate, i.e. C = C(Y - T,r). a. b. How will a rise in interest rate affect consumption expenditure and thus national saving? Explain how an increase in government expenditure would affect the economy in the long-run. In particular, explain the effects on investment and consumption. Suppose there is an increase in investment incentive because of...
Question 1. Suppose Kala's utility function is a function of consumption, with U = 150 cm...
Question 1. Suppose Kala's utility function is a function of consumption, with U = 150 cm Her income is 6. What is the expected value of a gamble where she wins 4 with probability 75% and loses 4 with probability 25%? Would Kala take this gamble? Question 2. What is the present value of $100 in two years, if the yearly interest rate is 7%? Question 3. Laura is deciding how much to consume in periods o, 1, and 2....
The following info rmation is available for a count Equilibrium and Fiscal Policy Consumption Function: C...
The following info rmation is available for a count Equilibrium and Fiscal Policy Consumption Function: C = 100 + 0.8(Y-T) 3,2 Net Taxes: T = 250 0 Planned Investment: I 200 2,8 Government Spending: G 300 The graph of the consumption function is shown as C 1.) Using the line drawing tool, draw the aggregate expenditure line. Label it AEt 2.) Using the point drawing tool, identify the equilibrium point. Label it E. 2, 3.) Using the line drawing tool,...
1. Consider a variant of the two-period model of consumption-saving behavior. In this version of the model, the consumer has income y in the first period and no income in the second period. Her life-time budget constraint is c+ a - 1+r = y. (a) Draw this budget constraint in a diagram with con horizontal axis and d on vertical axis. What are the slope and vertical intercept of this budget constraint? Label the endowment point in the diagram. (3...
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...
Please answer question a
Question 2: The consumption function with taxes that change over time To do this question you need to be familiar with the Appendix to chapter 4, which deals with the determination of the two period consumption and is on the class website (see OnQ). Households must decide how much they wish to spend on consumption today ((1+1Jel) versus consumption in the future (0+τ)G), where t is the rate of taxation on consumption (HST). Households are constrained...
In a simple economy (assume there are no taxes, thus Y is disposable income) the consumption function is C = 400 +0.75Y 2800- In this economy, the level of income at which the consumer breaks even (consumption equals income) is 24004 20004 1.) Using the point drawing tool, identify the breakeven income/consumption point that you found above 2) Using the line drawing tool, carefully graph the consumption function Properly label your line. Carefully follow the instructions above, and only draw...
I don't know how to solve (e)
1. The AE diagram below shows the consumption function of an economy, Each box is $20x$20 Distance between 45 degree line and consumtion curve is equal to saving, Distance between 45 degree line and AE curve is equal to unplanned inventory change. 45° (a) What are the MPC, MPS, and multiplier? **** (b) What are the savings when Y=200, 400, 600? 160+ 1001 100 400 (c) What are the consumption function and saving...
question 4
4. This question concerns how the consumption function affects the analysis of the loanable funds market. Suppose consumption depends on the interest rate, i.e. C = C(Y - T,r). a. b. How will a rise in interest rate affect consumption expenditure and thus national saving? Explain how an increase in government expenditure would affect the economy in the long-run. In particular, explain the effects on investment and consumption. Suppose there is an increase in investment incentive because of...
Question 1. Suppose Kala's utility function is a function of consumption, with U = 150 cm Her income is 6. What is the expected value of a gamble where she wins 4 with probability 75% and loses 4 with probability 25%? Would Kala take this gamble? Question 2. What is the present value of $100 in two years, if the yearly interest rate is 7%? Question 3. Laura is deciding how much to consume in periods o, 1, and 2....
The following info rmation is available for a count Equilibrium and Fiscal Policy Consumption Function: C = 100 + 0.8(Y-T) 3,2 Net Taxes: T = 250 0 Planned Investment: I 200 2,8 Government Spending: G 300 The graph of the consumption function is shown as C 1.) Using the line drawing tool, draw the aggregate expenditure line. Label it AEt 2.) Using the point drawing tool, identify the equilibrium point. Label it E. 2, 3.) Using the line drawing tool,...
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