4. Your income for this year is $50,000 and expect it will increase by 20% next...
4. Your income for this year is $50,000 and expect it will increase by 20% next year. .
a) Assume the interest rate is 20%. Draw budget constraint. Please indicate the slope, intercepts and the endowment point.
b) Suppose you plan to consume $60,000 this summer, what is your consumption bundle? Do you borrow or save?
c) Based on b), now suppose that you have found a new investment opportunity that will get you a higher annual return. Draw the new BC. Do you think you will save (or borrow) more or less?
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4. Your income for this year is $50,000 and expect it will
increase by 20% next...
Your income for this year is $50,000 and expect it will increase by 20% next year. a) Assume the interest rate is 20%. D...
Your income for this year is $50,000 and expect it will increase by 20% next year. a) Assume the interest rate is 20%. Draw budget constraint. Please indicate the slope, intercepts and the endowment point. b) Suppose you plan to consume $60,000 this summer, what is your consumption bundle? Do you borrow or save? c) Based on b), now suppose that you have found a new investment opportunity that will get you a higher annual return. Draw the new BC....
Suppose you earn $10,000 this summer and expect to earn $20,000 next summer. The interest rate...
Suppose you earn $10,000 this summer and expect to earn $20,000 next summer. The interest rate is 10%. (You don't have to submit a graph) a) Write down the slope of the budget constraint, horizontal intercept, vertical intercept and the X-Y coordinates for the endowment. b) Write your intertemporal budget constraint in the equation. c) With the same incomes, now suppose the bank pays you an interest rate of 10% on anything you save but will lend you money only...
12 PTS] Suppose you have an income of $200 this year and you expect an income of $110 next year. ...
12 PTS] Suppose you have an income of $200 this year and you expect an income of $110 next year. You can borrow and lend money at an interest rate of 10%. Consumption goods cost $1 and there is no inflation. (a) 13 PTs] Write the present value and the future value of your endowment? Show your budget set on the (b) 13 PTs] Suppose that you have the utility function U . Find analytically your optimal choice and graph....
Buzz is a chicken farmer. His earnings will be $100 this year and $100 next year....
Buzz is a chicken farmer. His earnings will be $100 this year and $100 next year. He can lend money at an interest rate of 20%. Because of a subsidized loan program for chicken farmers, he can borrow money at an interest rate of 10%. No matter what he borrows or lends, his earnings will still be $100 each year. a. If he is not allowed to either borrow or lend, draw a graph showing his budget between consumption this...
Christopher has an income of K200 this year and he expects an income of K110 next year. He can borrow and lend money at an interest rate of 10%. Consumption goods cost K1 and there is no inflation....
Christopher has an income of K200 this year and he expects an income of K110 next year. He can borrow and lend money at an interest rate of 10%. Consumption goods cost K1 and there is no inflation. What is the present value of Christopher’s endowment? What is the future value of Christopher’s endowment? Suppose that Christopher has the utility function U =C1C2. Write down Christopher’s marginal rate of substitution. Set this slope equal to the slope of the budget...
(10 marks) Consider the intertemporal model of consumption in which a consumer chooses between co...
(10 marks) Consider the intertemporal model of consumption in which a consumer chooses between consumption in the current period (Co) and consumption in the future period (C). Suppose individuals can borrow or save at constant interest rate, r. Suppose Jane has an initial endowment of Co in the current period and C, in the future period. Suppose Jane prefers to save some of her current income (amount S1) to finance an expensive vacation in the future period. 8. (2 marks)...
4. Suppose that doctors’ visits cost $20, and consumers each have an income of $100. Consumers...
4. Suppose that doctors’ visits cost $20, and consumers each have an income of $100. Consumers spend all their income on doctors’ visits and a “composite good” that costs $1 per unit. (3 points each) a. Draw a graph to illustrate a consumer’s budget constraint. Put doctors’ visits on the horizontal axis, and be sure to illustrate the horizontal and vertical intercepts. (You can assume that doctors’ visits are perfectly divisible.) b. Suppose the local government is considering two health...
12. Savings decisions Charles is a Nobel laureate who teaches economics at a university where he...
12. Savings decisions Charles is a Nobel laureate who teaches economics at a university where he is paid a yearly salary of $160,000. He plans to take the next year off to write a book, so he won't earn any money next year. He is currently trying to figure out how much of this year's salary he should save for next year. Disregard any tax considerations, and disregard what happens after next year. In other words, assume that next year,...
9. Income and substitution effects Dmitri and Frances Doherty live in Miami and enjoy going out...
9. Income and substitution effects Dmitri and Frances Doherty live in Miami and enjoy going out to fancy restaurants for dinner and to diners for breakfast. On the following diagram, the purple curves 11 and 12 represent two of their indifference curves for fancy dinners and diner breakfasts. They have $1,000 per month available to spend on eating out. The price of a diner breakfast is always $10. Each labeled point represents the tangency between a budget constraint and the...
Consider the typical example of shopping at Walmart for pants (x1) and shirts (x2). Your income...
Consider the typical example of shopping at Walmart for pants (x1) and shirts (x2). Your income endowment is $300; the price of shirts is $20, and the price of pants is $30 a) Write down a Cobb-Douglas utility function with exponents a=0.5 and 1-a=0.5. b) Write down the budget constraint for this problem. c) Set up the Lagrange and find the optimal consumption bundle for Xi and x2 (call this bundle A) d) Now assume that the price of pants...
Suppose you earn $10,000 this summer and expect to earn $20,000 next summer. The interest rate is 10%. (You don't have to submit a graph) a) Write down the slope of the budget constraint, horizontal intercept, vertical intercept and the X-Y coordinates for the endowment. b) Write your intertemporal budget constraint in the equation. c) With the same incomes, now suppose the bank pays you an interest rate of 10% on anything you save but will lend you money only...
12 PTS] Suppose you have an income of $200 this year and you expect an income of $110 next year. You can borrow and lend money at an interest rate of 10%. Consumption goods cost $1 and there is no inflation. (a) 13 PTs] Write the present value and the future value of your endowment? Show your budget set on the (b) 13 PTs] Suppose that you have the utility function U . Find analytically your optimal choice and graph....
Buzz is a chicken farmer. His earnings will be $100 this year and $100 next year. He can lend money at an interest rate of 20%. Because of a subsidized loan program for chicken farmers, he can borrow money at an interest rate of 10%. No matter what he borrows or lends, his earnings will still be $100 each year. a. If he is not allowed to either borrow or lend, draw a graph showing his budget between consumption this...
(10 marks) Consider the intertemporal model of consumption in which a consumer chooses between consumption in the current period (Co) and consumption in the future period (C). Suppose individuals can borrow or save at constant interest rate, r. Suppose Jane has an initial endowment of Co in the current period and C, in the future period. Suppose Jane prefers to save some of her current income (amount S1) to finance an expensive vacation in the future period. 8. (2 marks)...
12. Savings decisions Charles is a Nobel laureate who teaches economics at a university where he is paid a yearly salary of $160,000. He plans to take the next year off to write a book, so he won't earn any money next year. He is currently trying to figure out how much of this year's salary he should save for next year. Disregard any tax considerations, and disregard what happens after next year. In other words, assume that next year,...
9. Income and substitution effects Dmitri and Frances Doherty live in Miami and enjoy going out to fancy restaurants for dinner and to diners for breakfast. On the following diagram, the purple curves 11 and 12 represent two of their indifference curves for fancy dinners and diner breakfasts. They have $1,000 per month available to spend on eating out. The price of a diner breakfast is always $10. Each labeled point represents the tangency between a budget constraint and the...
Consider the typical example of shopping at Walmart for pants (x1) and shirts (x2). Your income endowment is $300; the price of shirts is $20, and the price of pants is $30 a) Write down a Cobb-Douglas utility function with exponents a=0.5 and 1-a=0.5. b) Write down the budget constraint for this problem. c) Set up the Lagrange and find the optimal consumption bundle for Xi and x2 (call this bundle A) d) Now assume that the price of pants...
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