1. The chapter uses the Fisher model to discuss a change in the interest rate for a consumer who saves some of his first-period income. Suppose, instead, that the consumer is a borrower. How does that alter the analysis? Discuss the income and substitution effects on consumption in both periods.
Q: 3 Consider a two period consumption saving problem. Let c1 and ez denote the first and second…
A: U = ln c1 + c2 r = 0.10 I1 = 100 I2 = 200 Lets consider Budget line asc1 + c21+r = I1 + I21+r
Q: Consider a two-period consumption saving model and let f1 and f2 denote the first and second period…
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A: Consumption function is a function which shows relationship between consumption and income. Hence,…
Q: State 3 characteristic of the consumption function ?
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Q: 1. Mia receives $100 of income this period and $100 next period. At an interest rate of 10 percent,…
A: On a budget constraint diagram, an indifference curve is created to show the tradeoffs between two…
Q: Suppose that C = a + bY, where C = consumption, a = consumption at zero income, b = slope, and Y =…
A: As we answer 3 subparts and the question has more than 3 subparts, we would be answering the first 3…
Q: Q1. Consider the following two-period model of consumption and saving: Utility = C1^0.5 + B*C2^0.5…
A: Utility = C1^0.5 + B*C2^0.5 C1 + C2/(1+r) = Y1 + Y2/(1+r) where Y1 = 4, Y2 = 1, r = 0.17 and B =…
Q: The diagram depicts Julia's choice of consumptions in periods 1 and 2. She has no income in period 1…
A: As can be seen that for any consumption level in period 2 lower interest rate led to more…
Q: Discuss the assumptions of the Fisher’s Intertemporal Choice Model
A: Hi. Since there are multiple questions, we will answer only the first one. The intertemporal choice…
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Q: a. Discuss the assumptions of the Fisher’s Intertemporal Choice Model b. Using Fisher's…
A: We are going to discuss Intertemporal model to answer this question.
Q: 1. Suppose a consumer has a monthly income of m = 100 which she spends on two commodities: french…
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Q: Remember to illustrate diagramatically for some of these parts! 6. Assume you can work as many…
A: "Since you have posted a question with multiple subparts,we will solve first three subparts for…
Q: Based on the intuition underlying the substitution effect, an individual would do the following:…
A: Wage is the amount earned for every unit of labor provided, and every unit of leisure given up. So…
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Q: 7. Consider a two-period model in which a family works in the first period and earns $120,000 and…
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Q: Steve has the utility function U(ci, c2) = c2 + 2c2where ci is his consumption in period 1 and ci is…
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Q: 7. Consider a generic consumption/leisure choice. How will the follow ing events/policies affect…
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A: We have interest rate =0.1 and utility function is an interteporal utility function.
Q: Q83 Suppose Jillian spends $250 on books per year when her income is zero. As her income rises, she…
A: Answer: Here, the consumption level when the income is zero is $250. It is called autonomous…
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Q: b. How does the increase in the tax rate affect the optimal choice of consumption (in the current…
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Q: Suppose the tax rate on interest income from saving were reduced. a. The income effect, but not…
A: Interest income: It is the amount of interest earned during a particular period of time.
Q: Suppose that C = a + bY, where C = consumption, a = consumption at zero income, b = slope, and Y =…
A: Since you have posted a question with multiple sub-parts, we will solve first three subparts for…
Q: Suppose, that a consumer is a saver, who saves some of his first-period income, and interest rate…
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Q: Using Fisher's Intertemporal Choice model, consider the following scenario: i. Suppose Milo earns…
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Q: 1. Consider a two-period model in which you work and save in the initial period (period 0) and live…
A: Period 0 income= $250,000 Period 0 income= $0
Q: Consider the household model that you have seen in class but now assume that the household lives for…
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- Explain how does adecrease in the current income y affect the consumer’s consumption-saving decision. In particular,explain: 1) How will current consumption c, future consumption c′, and savings s change; 2) Arethere any substitution effect or income effect. Make sure you draw two figures, one for the borrowersand one for the lendersExplain how does adecrease in the current income y affect the consumer’s consumption-saving decision. In particular,explain: 1) How will current consumption c, future consumption c', and savings s change; 2) Arethere any substitution effect or income effect. Make sure you draw two figures, one for the borrowersand one for the lenders.During any year, I can consume any amount that doesnot exceed my current wealth. If I consume c dollars duringa year, I earn ca units of happiness. By the beginning of thenext year, the previous year’s ending wealth grows by afactor k.a Formulate a recursion that can be used to maximizetotal utility earned during the next T years. Assume Ioriginally have w0 dollars.b Let ft(w) be the maximum utility earned during years t, t 1, . . . , T, given that I have w dollars at the be-ginning of year t; and ct(w) be the amount that should be consumed during year t to attain ft(w). By workingbackward, show that for appropriately chosen constantsat and bt,ft(w) btwa and ct(w) atwInterpret these results.
- 3rian earns income equal to $82,000 in the first period, but his income will drop to $19,170 in the second period. a Sketch his intertemporal budget constraint, ansuming a 6.5% interest rate. Add an indifference curve that assumes he optimally chooses to save $40,000 in the first period. Be sure to CLEARLY graph your answer, with labeln on the axes and any other important points. Also show work for any calculations done. b. Show the offect of a 50% tax on interest income, assuming the substitution and income effects cancel each other out. Again, be sure to clearly graph your answer and show work for any calculations done.For this question, assume that indifference curves are strictly convex, consumption andleisure are normal goods, and the optimal amounts of consumption, leisure, and labor arealways positive. A wage increase ______. (SE = substitution effect; IE = income effect)(a) increases labor supply via the SE and decreases labor supply via the IE(b) decreases labor supply via the SE and decreases labor supply via the IE(c) increases labor supply via the SE and increases labor supply via the IE(d) decreases labor supply via the SE and increases labor supply via the IE(e) Can’t tell without knowing the utility functionwhich is the most preferred level of individual’s choice for public expenditure relating it with individual’s utility dependence, by considering three different groups? also draw the graph and intrepret it.
- Consider the household model that you have seen in class but now assume that the household lives for 3 periods. She earns $100 in the first period, $110 in the second period, and $120 in the third period. Her goal is to consume equal amounts in all periods. The interest rate is the same in all periods. Which of the following statements are true? O a. In the first period she will save O b. In the first period she will borrow O c. In the third period she will save O d. In the second period her consumption is $100Pls help me with this homework : Given the following leisure-income bundles, use the chord method to calculate the marginal rate of substitution (MRS) and make sure to use a graph in answering this question, given that the marginal utility of income (MUY) and marginal utility of leisure (MUL) are 4 and 40 respectively : Bundle A: 4 hours of leisure, income equals N$200, utility equals 200 utils; Bundle B: 4 hours of leisure, income equals RI00, utility equals 100 utils; Bundle C: 7 hours of leisure, income equals N$100, utility equals 200 utils. Thank You !!Draw the indifference curve for someone decidinghow to allocate time between work and leisure.Suppose the wage increases. Is it possible that theperson’s consumption would fall? Is this plausible?Discuss. (Hint: Think about income and substitutioneffects.)
- Suppose a consumer has a monthly income of m = 100 which she spendson two commodities: french fries (x1) and beef jerky (x2). The price offrench fries is p1 = 2 and the price of beef jerky is p2 = 5. (e) What is the slope of the budget line? Provide an economicinterpretation of this number.(f) Because of Mad Cow Disease, the price of beef jerky increasesto $10 (lower supply of beef). On a new graph, plot the originaland new budget constraint clearly identifying how the budgetconstraint has changed. What is the new relative price of beefjerky in terms of french fries?(g) Because of severe shortages, Congress passes the Jerky ReliefAct which limits each consumer to purchase at most 5 packs ofjerky. Show on a graph how this affects the consumer’s budgetset. Answer all three.Garfield enjoys pizzas and hanging out (leisure). He sleeps 8 hours per day. Of the remaining16 hours, for each hour he chooses to work he gets paid 2 pizzas. Garfield must pay 6 pizzas intaxes but receives dividends equivalent to 6 pizzas.1. Draw Garfield’s budget constraint (put consumption on the vertical axis and leisure of thehorizontal). Make sure to show the vertical and horizontal intercepts as well as the slope.b. Now suppose that Garfield chooses to work 10 hours per day. Find how many hoursof leisure and how many pizzas he will consume.c. Using your answer from b, show Garfield’s optimal point on the budget line and drawthe indifference curve passing from that point.4. Suppose that Garfield’s wage falls to 1 pizza per hour. Draw Garfield’s new budgetconstraint. Make sure to show the value of any intercept that has changed.5. Suppose that in response, Garfield decides to work for 6 hours per day. How much leisurewill he take, and how much pizza will he consume?6. Use an…Garfield enjoys pizzas and hanging out (leisure). He sleeps 8 hours per day. Of the remaining16 hours, for each hour he chooses to work he gets paid 2 pizzas. Garfield must pay 6 pizzas intaxes but receives dividends equivalent to 6 pizzas.1. Draw Garfield’s budget constraint (put consumption on the vertical axis and leisure of thehorizontal). Make sure to show the vertical and horizontal intercepts as well as the slope.b. Now suppose that Garfield chooses to work 10 hours per day. Find how many hoursof leisure and how many pizzas he will consume.c. Using your answer from b, show Garfield’s optimal point on the budget line and drawthe indifference curve passing from that point.4. Suppose that Garfield’s wage falls to 1 pizza per hour. Draw Garfield’s new budgetconstraint. Make sure to show the value of any intercept that has changed.5. Suppose that in response, Garfield decides to work for 6 hours per day. How much leisurewill he take, and how much pizza will he consume?6. Use an…
