Question

Assume that you define your permanent income as the average of your current income plus your...

Assume that you define your permanent income as the average of your current income plus your income over the past four years. Your earnings record over these years has been: Yt = $39,000; Yt-1 = $37,000; Yt-2 = $35,000; Yt-3 = $33,000; and Yt-4 = $32,000.

(a) What is your permanent income in this period, YPt?

(b) If next year, your income increases to Yt+1 = $45,000, what is your permanent income next year, YPt+1?

(c) By how much will your consumption change between year t and year t+1 if you always consume 90 percent of your permanent income?

(d) What is your long-run MPC?

(e) What is your short-run MPC?

Homework Answers

Answer #1

Long run MPC depends on permanent income of the individual while the short run MPC depends on the transitory income of the individual which is greater for high income groups and less for lower Income groups .

D) long run MPC In period t+1 = change in consumption in period t+1 divided by change in permanent income in period t+1

= 34020-31680/37800-35200

=2340/2600

=0.9

E) Short run MPC will depend on the normal income in period Yt and Yt+1 not on the permanent income .

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Assume you define your permanent income as the average of your disposbale income from the most...
Assume you define your permanent income as the average of your disposbale income from the most recent five years. Your disposbale income record over these five years have been: Y?t= $50,000 Yt-1=$45,000 Yt-2=$40,000 Yt-3=$38,000 Yt-4=$30,000 A. If your income next year goes up to Yt+1=$52,000, how much will your consumption change from this year to the next if Cp=0.9Yp? B. Suppose that the government increases income taxes for only one year. How will this affect aggregate consumption if 50% of...
In the past, how has your consumption changed as the amount of your income increased and...
In the past, how has your consumption changed as the amount of your income increased and decreased over the years? How do you supplement for periods of low-income (for example if you are not working while you are in college)? Finally, compare your MPC now to what you think your MPC would be once you graduate and get a high-paying job. Do you think it will remain constant, increase, or decrease? Why?
During the current year, Ron and Anne sold the following assets: (Use the dividends and capital...
During the current year, Ron and Anne sold the following assets: (Use the dividends and capital gains tax rates and tax rate schedules.) Capital Asset Market Value Tax Basis Holding Period L stock $ 50,000 $ 41,000 > 1 year M stock 28,000 39,000 > 1 year N stock 30,000 22,000 < 1 year O stock 26,000 33,000 < 1 year Antiques 7,000 4,000 > 1 year Rental home 300,000* 90,000 > 1 year *$30,000 of the gain is 25...
10.       Suppose a firm is interested in purchasing the following income producing property at a current...
10.       Suppose a firm is interested in purchasing the following income producing property at a current market price of $450,000. The prospective buyer has estimated the expected cash flows over the next four years to be as follows: Year 1 = $40,000, Year 2 = $45,000, Year 3 = $50,000, Year 4 = $55,000. Assuming that the required rate of return is 12% and the estimated proceeds from selling the property at the end of year four is $500,000, what...
The balance sheet and income statement shown below are for Koski Inc. Note that the firm...
The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. Balance Sheet (Millions of $) Assets 2016 Cash and securities $2,145 Accounts receivable 8,970 Inventories 12,480 Total current assets $23,595 Net plant and equipment $15,405 Total assets $39,000 Liabilities and Equity Accounts payable $7,410...
The balance sheet and income statement shown below are for Koski Inc. Note that the firm...
The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. Balance Sheet (Millions of $) Assets 2016 Cash and securities $2,145 Accounts receivable 8,970 Inventories 12,480 Total current assets $23,595 Net plant and equipment $15,405 Total assets $39,000 Liabilities and Equity Accounts payable $7,410...
Assume that McLean prevails in his negligence and/or strict liability lawsuits. In determining the amount of...
Assume that McLean prevails in his negligence and/or strict liability lawsuits. In determining the amount of damages he may recover for loss of earnings consider the following: McLean’s medical condition is such that he is unable to ever work again; he was 53 years of age at the time of the injury and would have been expected to retire at the age of 65; his life expectancy at the time of the injury was 77 years of age; he is...
The balance sheet and income statement shown below are for Koski Inc. Note that the firm...
The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. Balance Sheet (Millions of $) Assets 2016 Cash and securities $2,145 Accounts receivable 8,970 Inventories 12,480 Total current assets $23,595 Net plant and equipment $15,405 Total assets $39,000 Liabilities and Equity Accounts payable $7,410...
1.     Suppose the United States economy is represented by the following equations: Z = C + I...
1.     Suppose the United States economy is represented by the following equations: Z = C + I + G            C = 100 + .5YD                     T = 200                     I = 30 YD= Y - T                G = 100 a)     Which variables are endogenous and which are exogenous? b)     Calculate equilibrium levels of output, consumption and disposable income c)     What is the multiplier for this economy d)     What is the effect of increasing G by $100 on Y and the deficit 2)     Suppose that the wage and price setting relations are...
1.     Suppose the United States economy is represented by the following equations: Z = C + I...
1.     Suppose the United States economy is represented by the following equations: Z = C + I + G            C = 100 + .5YD                     T = 200                     I = 30 YD= Y - T                G = 100 a)     Which variables are endogenous and which are exogenous? b)     Calculate equilibrium levels of output, consumption and disposable income c)     What is the multiplier for this economy d)     What is the effect of increasing G by $100 on Y and the deficit 2)     Suppose that the wage and price setting relations are...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT