A consumer's income in the current period is y = 100 and income in the future period is y'= 120. He or she pays lump-sum taxes t=20 in the current period and t'= 10 in the future period. The real interest rate is 0.1, or 10%, per period. (a) Determine the consumer's lifetime wealth. (b) Suppose that current and future consumptions are perfect complements for the con sumer and that he or she always wants to have equal consumption in the current and future periods. Draw the consumer's indiffer ence curves. (c) Determine what the consumer's optimal current-period and future-period consump tions are, and what optimal saving is, and show this in a diagram with the consumer's budget constraint and indifference curves. Is the consumer a lender or a borrower
A consumer's income in the current period is y = 100 and income in the future period is y'= 120. He or she pays lump-sum taxes t=20 in the current period and t'= 10 in the future period. The real interest rate is 0.1, or 10%, per period.
(a) Determine the consumer's lifetime wealth.
(b) Suppose that current and future consumptions are perfect complements for the con sumer and that he or she always wants to have equal consumption in the current and future periods. Draw the consumer's indiffer ence
(c) Determine what the consumer's optimal current-period and future-period consump tions are, and what optimal saving is, and show this in a diagram with the consumer's budget constraint and indifference curves. Is the consumer a lender or a borrower?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
