Assume an intertemporal budget constraint that shows how consumption can be traded off between two periods, t and t+1. Assume the consumer can save and borrow at the same interest rate of 10%. Assume the consumer collects income of $100 in each period. To gain an extra $10 dollars in period t+1, what must the consumer give up in period t? 11 10 1 10
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Assume an intertemporal budget constraint that shows how consumption can be traded off between two periods, t and t+1. Assume the consumer can save and borrow at the same interest rate of 10%. Assume the consumer collects income of $100 in each period. To gain an extra $10 dollars in period t+1, what must the consumer give up in period t?
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- 1) Sandeep consumes (c1, c2) and earns (m1, m2) in periods 1 and 2 respectively. Suppose that the interest rate is r. a) Write down Sandeep's intertemporal budget constraint in present value terms. b) If Sandeep does not consume anything in period 1, what is the most he can consume in period 2?The importance of income in determining savings has persisted since the time of Keynes. Why have other theories failed to displace income as the most critical variable in saving theory?Find the disposable income when the consumption is $210 in the saving our $ 190
- Using the figure below, graphically prove that the consumer saves less when his future income increases.An individual earns $100 this and $100 next year. On the diagram below, draw the person's intertemporal budget constraint assuming an interest rate of 5%. (Be sure to label the axes correctly. Put in the appropriate numerical values. Note that subscript 1 denotes this year and subscript 2 denotes next year.)it is given that the ratio of APS to APC is 2/7 Calculate the ratio of Consumption to savings
- Suppose that a person can borrow and lend at an interest rate of 10 percent. But there is a 5% rate of inflation and one has to pay an income tax of 30 % on all interest income. If you borrow money, you can deduct interest as an expense. Where current consumption is on the horizontal axis and future consumption is on the vertical axis: (a) the budget line will have a kink at the point of no saving or lending. (b) the budget line will be a straight line with a slope of about 1: 02. (c) the budget line will be a straight line with a slope of about 1:05. (d) the budget line will be a straight line with a slope of about 1:35.Define disposable incomeAssume you have $2,000 autonomous consumption and given $10,000 disposable income did not allow you to save anything. What will be your MPC?
- Suppose that y =100 (income today) • y' = 150 (income tomorrow) 10% (interest rate on bonds) %3D r = • t = 10 (taxes today) • t' = 10 (taxes tomorrow) Suppose that c = 100. Is the consumer borrowing or saving, today? And what will her budget constraint look tomorrow? The consumer is borrowing. Her budget constraint tomorrow will be c' = 150 -10 - 10*(1.1) = 129 The consumer is saving. Her budget constraint tomorrow will be c' = 150 -10 + 10*(1.1) = 151 O The consumer is neither borrowing nor saving - she is breaking even. Her budget constraint tomorrow will be c' = 150 -10 = 140 O The consumer is saving. Her budget constraint tomorrow will be c' = 150 + 10*(1.1) = 161 %DQ5) Consumption-Saving Choice Based on Abel, Bernanke and Croushore, 10th edition, Chapter 4, Numerical Problems No. 1. A consumer is making saving plans for this year and next. She knows her real income after taxes will be $50,000 in both years. Any part of her income saved this year will earn a real interest rate of 10% between this year and next year. Currently, the consumer has no wealth (no money in the bank or other financial assets, and no debts). There is no uncertainty about the future. a) Formally derive the consumer's intertemporal budget constraint. b) Using the given numerical values rewrite and graph the budget line. c) Find the consumer's PVLR.APPLIED ECONOMICS Topic: Intertemporal Choice Levinn’s utility function is expressed as the following: U= C1 C2 0.3 where C1 is his first periodconsumption and C2 is his second period consumption. His income in the first period is$2500 and interest rate is at 10%. If at equilibrium, Levinn is neither a borrower nor a lender,then what is his expected income in the second period? Do not copy from others