1. Using a two-period income- consumption diagram, show the impact of a rise in the interest...
1. Using a two-period income- consumption diagram, show the impact of a rise in the interest rate assuming the household borrows in period 1
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1. Using a two-period income- consumption diagram, show the
impact of a rise in the interest...
1. Using a two-period income-consumption diagram, show the impact on current savings of a fall in...
1. Using a two-period income-consumption diagram, show the impact on current savings of a fall in the interest rate. Assume that the individual saved part of her income in period 1. 2. Using a two-period income-consumption diagram, show the impact of a rise in the interest rate assuming the household borrows in period 1.
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...
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...
Consider an economy occupied by two households (i- A, B) who are facing the two-period consumption...
Consider an economy occupied by two households (i- A, B) who are facing the two-period consumption problem. Each household i - A, B is facing the following utility maximization problem: max subject to ci +biy(1+r)bo where Vi and US are household i's exogenous income in period t 1.2. cỈ and c are household i's consumption in period t 1,2. bo,bi is household i's bond holdings of which bo is exogenously given, r is the real interest rate, and 0 <...
2. Capital Tax: In our two period consumption-savings model, suppose that positive interest income in period...
2. Capital Tax: In our two period consumption-savings model, suppose that positive interest income in period 2 is taxed at rate t. Assume that Ao -0, the individual has positive endowment in both periods, and nominal prices for the good remain the same despite the ax (a) Write down the budget constraints in each period and obtain an algebraic expression for his life-time budget constraint. (b) Suppose that at the optimal choice, the representative individual is choosing not to save...
6. Consider a consumer that lives for two periods and chooses consumption in period 1 and...
6. Consider a consumer that lives for two periods and chooses consumption in period 1 and in period 2. At the current interest rate of 10% the consumer borrows $10,000. If the interest rate increases to 30% what will happen to saving in period 1? (a) Saving in period 1 increases unambiguously. (b) Saving in period 1 decreases unambiguously. (c) Saving in period 1 does not change. (d) Saving in period 1 could either increase or decrease (uncertain)
Consider another consumer that lives for two periods and chooses consumption in period 1 and in...
Consider another consumer that lives for two periods and chooses consumption in period 1 and in period 2. At the current interest rate of 10% the consumer lends $10,000. If the interest rate increases to 30%, what will happen to consumption in period 1 (current consumption)? (a) Consumption in period 1 increases unambiguously. (b) Consumption in period 1 decreases unambiguously. (c) Consumption in period 1 increases only if the substitution effect dominates the income effect. (d) Consumption in period 1...
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,...
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. If the real interest rate is denoted by p, the present value of consumption in...
1. If the real interest rate is denoted by p, the present value of consumption in an intertemporal choice model of two periods is given by? a) ci +c2/(1+p) b) c1 (1-)+c7/(1-P) c) ci/(1+p) +c2/(1-P) d) ci tc2 2. The household's rate of time preference is given by a) the slope of the budget constraint. b) the slope of the indifference curves. c) the real rate of interest. d) the slope of the 45° line. 3. According to Keynes, the...
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...
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...
Consider an economy occupied by two households (i- A, B) who are facing the two-period consumption problem. Each household i - A, B is facing the following utility maximization problem: max subject to ci +biy(1+r)bo where Vi and US are household i's exogenous income in period t 1.2. cỈ and c are household i's consumption in period t 1,2. bo,bi is household i's bond holdings of which bo is exogenously given, r is the real interest rate, and 0 <...
2. Capital Tax: In our two period consumption-savings model, suppose that positive interest income in period 2 is taxed at rate t. Assume that Ao -0, the individual has positive endowment in both periods, and nominal prices for the good remain the same despite the ax (a) Write down the budget constraints in each period and obtain an algebraic expression for his life-time budget constraint. (b) Suppose that at the optimal choice, the representative individual is choosing not to save...
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,...
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. If the real interest rate is denoted by p, the present value of consumption in an intertemporal choice model of two periods is given by? a) ci +c2/(1+p) b) c1 (1-)+c7/(1-P) c) ci/(1+p) +c2/(1-P) d) ci tc2 2. The household's rate of time preference is given by a) the slope of the budget constraint. b) the slope of the indifference curves. c) the real rate of interest. d) the slope of the 45° line. 3. According to Keynes, the...
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