Assume you define your permanent income as the average of your income from this and the past four years. Your earnings record over these five years has been: Yt = 40,000, Yt-1 = 38,000, Yt-2 = 34,000, Yt-3 = 32,000, Yt-4 = 31,000. If your income increases next year to Yt+1 = 46,000, by how much will your consumption change if you always consume 90 percent of your permanent income?

Assume you define your permanent income as the average of your income from this and the past four years. Your earnings record over these five years has been: Yt = 40,000, Yt-1 = 38,000, Yt-2 = 34,000, Yt-3 = 32,000, Yt-4 = 31,000. If your income increases next year to Yt+1 = 46,000, by how much will your consumption change if you always consume 90 percent of your permanent income?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.2P

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