Consumer has utility function In(c1)+beta*In(c2), where beta=1. Interest rate i=0%. (NOTE!) Income y1=10 and y2-50. Gov't gives consumer a free stimulus check of $20 in the first period. Assume consumers are NAIVE, then in the first period the consumer will consume c1=
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- Suppose that •y =100 (income today) • y' = 150 (income tomorrow) • r = 10% (interest rate on bonds) t = 10 (taxes today) %3D • t' = 10 (taxes tomorrow) What is the lifetime budget constraint for the consumer? c + c'/1.1 = 250 c + c'/1.1 = 230 c + c' = 217.27 c + c'/1.1 = 217.27Suppose the economy is characterized by the following behavioral equation: Y = C + I + G + (X-M) Equilibrium condition C = 2000 -f' 0.75Yd Consumption equation I = 4000 Investment expenditure G = 4100 Government Expenditure X = 2800 Export M = 400 + 0.25Y Import equation T = 100 + 0.3Y Tax equation Yd = disposable IncomeRequired: Derive Balance of Payment (BP) curve and explain why it slopes upwards Compute equilibrium national income and Imports for the economy. Differentiate between the closed-economy model and the open economy modelConsider a consumer that lives only for two periods. He works in period 1 (and gets income Y1) and moves up the corporate ladder in period 2 (and gets income Y1 < Y2). This consumer has the usual preferences over time: u(C1) + βu(C2) 1. Assume this consumer cannot borrow. What is the consumption in period 1 and period 2? Display graphically. Show the corresponding utility curve. 2. Assume that now the consumer is allowed to save or borrow. Write down the new budget constraint. What is the consumption in period 1 and period 2? Display graphically. Could the consumer be worse off? Could the consumer be better off? Draw budget constraints such that for one of them consumer prefers to borrow and for the other - prefers to save. 3. Assume once again that a consumer cannot borrow, but can borrow and immediately sell some MacGuffins, and in the next period, the consumer must buy back the MacGuffins to return to the lender. Assume that MacGuffin t r a d e s a t P1 > 0 in the first period…
- Help meAnya has a two-period horizon. She has the utility functionu (c1,c2) = 2ln(c1) + ln(c2), where cj is her consumption in period j. Her income is Mj in period j. Assume that M1= 7,000 and M2=9,600. The interest rate at which she can borrow and lend is 20%. (i) Find the equation for Anya’s budget line. (ii) Find her optimal bundle. (iii) Explain whether her utility would rise or fall if the interest rate were to fall slightly. (iv) Now suppose that the interest rate is again 20% and Anyahas M1= 0 and M2= 18,000.Explain why her optimal bundles here and in (ii) are related as they are. *just answer part iv.Anya has a two-period horizon. She has the utility functionu (c1,c2) = 2ln(c1) + ln(c2), where cj is her consumption in period j. Her income is Mj in period j. Assume that M1= 7,000 and M2=9,600. The interest rate at which she can borrow and lend is 20%. (i) Find the equation for Anya’s budget line. (ii) Find her optimal bundle. (iii) Explain whether her utility would rise or fall if the interest rate were to fall slightly. (iv) Now suppose that the interest rate is again 20% and Anyahas M1= 0 and M2= 18,000.Explain why her optimal bundles here and in (ii) are related as they are.
- Suppose that the economy is characterized by the following behavioral equations: C = 180 + 0.80YD /= 140 G = 160 T= 110 Equilibrium GDP (Y) = 1960. (Round your response to two decimal places.) Disposable income (Y,) = 1850. (Round your response to two decimal places.) %3D Consumption spending (C) = | (Round your response to two decimal places.)Consider a closed economy with consumption, production, and government. The representative consumer always desires a consumption bundle where the quantities of consumption and leisure are such that C=al and a = 1. Show the following on your answer sheet. [1] Suppose that w = 0.75, profit = 8, and T= 6. Determine the consumer's optimal choice of consumption and leisure, showing every step of your calculation. [2] Illustrate the consumer's equilibrium from part [1] in a diagram.Suppose that we have an economy with many identical households. There is a government that exogenously consumes some output and pays for it with lump sum taxes. Lifetime utility for a household is: U =InCt +ßlnCt+1 The household faces two within period budget constraints given by: Ct + St = Yt – Tt Ct+1 =Yt+1 -Tt+1 +(1+rt)St Use the Euler equation and intertemporal budget constraint to derive an expression for the consumption function. The government faces two within period budget constraints: (1) G_t + SG_t = T_t (2) G_(t+1) = T_(t+1) + (1 + r_t)SG_t In equilibrium, what must be true about S_t and SG_t?
- Explain the difference between the policy preferences function and the indirect utility function.Consider a consumer that lives only for two periods. He works in period 1 (and gets income Y1) and moves up the corporate ladder in period 2 (and gets income Y1 < Y2). This consumer has the usual preferences over time: u(C1) + βu(C2) Assume that now the consumer is allowed to save or borrow. Write down the new budget constraint. What is the consumption in period 1 and period 2? Display graphically. Could the consumer be worse off? Could the consumer be better off? Draw budget constraints such that for one of them consumer prefers to borrow and for the other - prefers to save.Suppose that the economy is characterized by the following behavioral equations: C = 150 + 0.90YD 1= 130 G = 150 T= 90 Equilibrium GDP (Y) = (Round your response to two decimal places.) Disposable income (Yp) = (Round your response to two decimal places.) %3D Consumption spending (C) = (Round your response to two decimal places.) %3D