Question

Suppose your current income is $80,000, and your future income is
110,000. The interest rate= 0.1.

1.What is the present value of your life time income?

2.What is the future value of your lifetime income?

3. What is the slope of the intertemporal budget constraint?

4.

If your MRTP at your current consumption is 1.05 then you should:

Select one:

a.

You should save money to spend more in the future

b.

You should borrow money to spend more today

c. Nothing, you are maximizing your utility

d.

You have negative time preference

Answer #1

If Lupita’s income at t=1(current period) is $150,000 and her
income att=2(future period) will be $110,000.
a.Show algebraically and using a graph,what is Lupita’s possible
maximum present consumption (at t=1), a.k.a.the Present Value of
lifetime income, and possible maximum future consumption (at t=2),
a.k.a. the Future Value of lifetime income,if the market interest
rate between period t=1 and period t=2is 10%.
b.If Lupita chooses to save $50,000 at period t=1 (c1: present
consumption), how much can she consume at period...

1. Your lifetime utility is a function of:
a. your lifetime income.
b. today’s consumption only.
c. the amount of wealth in the utility function.
d. today’s consumption and the present value of future
consumption.
e. the present value of future consumption only.
2. The problem the household must solve is:
a. choosing period consumption to satisfy the concurrent budget
constraint.
b. choosing consumption to ensure some income is left over for
future generations.
c. choosing lifetime consumption that satisfies...

Smith lives in a world with two time periods: current period and
future period. His income in each period is $10,000.
A) Draw his intertemporal budget constraint when the interest
rate is 33%.
B) If Smith consumes $10,000 in each period, show his best
affordable bundle and the indifference curve that passes through
it.
C) Graphically show how Smith's current consumption changes when
the interest rate falls to 0%.

If current and future consumption are both normal goods, an
increase in the interest rate will necessarily:
1) cause savers to save more
2) cause borrowers to borrow less
3) reduce everyone's current consumption
4) make everyone worse off
5) none of the above
the answer is 2), but I can't understand why 1) can't be an
answer. Please explain the answer thoroughly.

Jane lives two periods. Her income in the current period is
?=500, her income in the future
period is yf=660 and her real wealth at the beginning of the
current period is ?=100. The real interest
rate is ?=0.1 or 10%. Also, Jane wants her current consumption
to be 2.5 times greater than her future
consumption.
a. Compute the present value of Jane’s lifetime resources
(PVLR).
b. Determine the optimal values for Jane’s current consumption (
c ), current saving...

Suppose you currently have no wealth or income, but will receive
a $1,000,000 inheritance 15 years from today. You would like to
borrow against this future windfall such that you spend equal
annual amounts of $X each year, starting today (at t=0)
and ending in 15 years (at t=15). If your bank charges you
5 percent annually to borrow money, what is the maximum amount, $X,
that you can spend at each point in time?

1. Expectations that disposable income will increase in the
future will
a. shift the current consumption function up
b. shift the current consumption function down
c.result in a movement upward along the current consumption
function
d. make the current consumption function flatter
e. make the current consumption function steeper
2. The partners in the Wonderwords word processing firm spend
$12,000 on computers, hoping to earn an additional $1,000 per year
with them. If the partners could earn 7 percent interest...

Suppose there are two goods, X and
Y. The price of good X is $2 per unit and the price of
good Y is $3 per unit. A given consumer with an income
of $300 has the following utility function:
U(X,Y) = X0.8Y0.2
which yields
marginal utilities of:
MUX= 0.8X-0.2Y0.2
MUY= 0.2X0.8Y-0.8
a. What
is the equation for this consumer’s budget constraint in terms of X
and Y?
b. What
is the equation for this consumer’s marginal rate of substitution
(MRSXY)? Simplifyso you only have...

Emil has access to a perfect capital market1 with interest rate
r ∈ (0, 1). He has preferences over bundles (x, y) ∈ R2+ of money
for consumption in period 1 (x) and money for consumption in period
2 (y) that can be represented by the following utility function
u(x, y) = x2 · y
Emil has an endowment of E = (2000, 1200), that is his income in
period 1 is m1 = 2000 and his income in period...

Assume the representative consumer lives in two periods and his
preferences can be described by the utility function U(c,c′)=c1/3
+β(c′)1/3, where c is the current consumption, c′ is next period
consumption, and β = 0.95. Let’s assume that the consumer can
borrow or lend at the interest rate r = 10%. The consumer receives
an income y = 100 in the current period and y′ = 110 in the next
period. The government wants to spend G = 30 in...

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