Consider a two-period model in which you work and save in the initial period (period 0) and live off savings and the interest from savings in retirement (period 1). Suppose that income in period 0 is $250,000, income in period 1 is $0, and the interest rate is 50%. Suppose that preferences are such that after tax consumption is equalized in period O and period 1. On the diagram show after- tax savings. C: ($ x 1,000) 450 400 350 300 250 200 150 100 50 25 50 75 100 125 150 175 200 225 250 275 300 325 350 Co ($ x 1,000)
Q: The demand function for a particular product is given by D(x)=0.5x^2+3x+190‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾√D(x)=0.5...
A: Here, a particular demand function is given as: D(x)=0.5x2+3x+190 To find: marginal revenue at the q...
Q: From your perspective explain Globalization and its impact on countries. Identify at least two pros ...
A: The exchange of capital, goods, and services across international borders or territories because goo...
Q: Discuss divergent views on population growth
A: Population growth:- The rise in the number of individuals in the population is known as population e...
Q: The vertical difference between TVC and TC is equal to
A: To find : What is vertical difference between TVC amd TC.
Q: An externality arises when one economic agent's actions affect the welfare of others in ways that ar...
A: The indirect benefit or cost being caused to third parties mainly arising due to the effect of activ...
Q: Historically, which of the following are reasons that a large US public debt might not threaten to b...
A: An increase in US public debt might not threaten to bankrupt the Federal government on account of di...
Q: How was the recession in 2020 different than the recession in 2008? What was the government response...
A: Recession: It is one of the phases of the business cycle, during the recession employment will be re...
Q: The class that owns the mode of production is in the dominant position and exploits the other classe...
A: Here, it is given that a firm or class has ownership of mode of production due to which it exploited...
Q: The graph below shows the MB of pollution control (which is known) and the MAC of pollution control,...
A: The figures provided show the Minimum Profit of Pollutioñ and the Cost of Social Reduction of Uncont...
Q: Consider an economy that producos and consumes only three goods. The following table shows the price...
A: GDP growth rate is defined as the rate of increase in the GDP of a country during a period. The peri...
Q: Price agreement Break the agreement Perlis Price agreement (3,2) A (-1,3) B Break the (4,-1) C (0,0)...
A: 17) Nash equilibrium is the strategy in the game from which no player has an incentive to deviate. ...
Q: Economic activity should continue to expand at a similiar rate to 2021's projected rebound, on the b...
A: Monetary policy can be either expansionary monetary policy or contractionary monetary policy, expans...
Q: Discuss the likely effects of an increase in uncertainty about cash flows on the responsiveness of a...
A: Introduction When the interest rate changes on debt, it will impact the net income of firms. It will...
Q: A firm that always employs two workers for each unit of capital follows which type of production fun...
A: The technological relation that exists between quantities of the output of goods and the quantities ...
Q: In the simple Keynesian model, if aggregate expenditure is less than GDP, output will a)decline as ...
A: The expenditure-output model displays the relationship between aggregate expenditure and economic ou...
Q: II. Helping Conchita-Crem to minimize costs Suppose that the labor cost of Conchita-crem is $20 USD ...
A: Given production function q=10L^0.5 K^0.5 Price of labor=$20 Price of capital=$5
Q: Refer to the accompanying figure. If the market for doughnuts is perfectly competitive, and the pric...
A: Here, the given graph shows the marginal cost and average cost of producing doughnuts by the firm in...
Q: In an increasing cost industry, the long-run market supply curve is _____ because the long run _____...
A: The expenses that are being incurred by the business for carrying out transactions are known as cost...
Q: Suppose Cody has utility function U (x, y) = a/¤ + ß/ỹ over goods x and y, where a 2 and B = 2. a) I...
A: The utility function for Cody is, U(x,y)=2x+2y Given the prices and income we find the optimal bundl...
Q: An increase in the money demand, with money supply held constant, means that we will observe O a. A ...
A: Equilibrium interest rate is determined where quantity of money demanded equals quantity of money su...
Q: Scenario 1: Barbara is a producer in a monopoly industry. Her demand curve, total revenue curve, mar...
A: In a monopoly, Marginal revenue lies below the demand curve. This implies that the firm has to decre...
Q: 1. Two interesting public goods are radio and television signals. A. In the U.S., private markets ha...
A: The two broad categories of goods are :- (1) Public goods (2) Private goods
Q: 2. ENUMERATE SOME COMPARISONS AND CONTRASTS OF THE CONCEPT OF DEMAND AND CONCEPT OF SUPPLY. Give 5 e...
A: Demand and supply are two essential components of a market that determine the equilibrium quantity a...
Q: Is the relationship between total fertility rate and the rate of enrollment of girls in secondary sc...
A: Yes, the overall fertility rate and the rate of female secondary school enrolment are linked.
Q: You have 6 hours to study for 2 exams tomorrow. The relationship between the time studying and test ...
A: A consumer maximises his utility at a point where marginal utility per dollar for two goods are equa...
Q: Automatic stabilizers a)increase consumption during a recession above what it would otherwise be...
A: Automatic stabilizers work to maintain the equilibrium in the economy. Too much of inflation or def...
Q: 7. Marginal utility is equal to average utility at that time when average utility is
A: To find : When is margin utility equal to average utility.
Q: 2. A consumer has utility function и(х, у) — x+y for two goods, where x > 0 denotes the amount of X ...
A:
Q: Use the 3-equation model diagrams to show how the economy can fall into a deflation trap. Explain, w...
A: A deflationary trap, according to Yasushi Iwamoto, an economics professor at the University of Tokyo...
Q: Select one: O Neither country has a comparative advantage in the production of timber or honey. O Le...
A: Comparative advantage arises when the country produces good at lower opportunity cost than other cou...
Q: Info for the following two questions: Consider the sequential game below, with two players (1 and 2)...
A: Answer -
Q: 11. Which of the following is a common criticism of government price controls? a) They restrict the ...
A: In a market, governement generally use price control strategy to restrict the unfair pricing policie...
Q: To minimize GDP fluctuations, the government should run a budgetin times of recession and a budget i...
A: When talking about GDP fluctuations, it is the cause of the fluctuations in the business cycle such ...
Q: Polio is a disease caused by a contagious virus that can result in paralysis. A vaccine prevents the...
A: a) The vaccine here is considered as a positive externality. A positive externality is one that prov...
Q: Using the data in the table below, calculate the CPI and the inflation rate in each year, using 2013...
A: CPI = (cost of basket in current year/cost of basket in base year )*100 The base year is 2013 ------...
Q: List institutions that influence international environmental policy and describe how nations handle ...
A: Environmental policy is a problem-solving tool that takes the help of different domains like economi...
Q: Suppose the market demand for pizza is given by Qd = 300 – 20P and the market supply for pizza is gi...
A: Substitute Goods Substitute goods refers to the goods that can be used in place of one another. In ...
Q: The diagram below shows the short - run cost curves for 3 perfectly competitive firms in the same in...
A: In a perfectly competitive market, price is constant so it is equal to marginal revenue. Profit is m...
Q: what do you understand about unemployment rate among young graduates?
A: Unemployment is referred to be a situation whereby a person who has the ability to work and is also ...
Q: 3. Explain where a perfectly competitive firm's marginal revenue curve is located relative to price ...
A: Perfect competition this is a type of a market structure.
Q: :0. Economic survey is published by
A: To find : Who publish economic survey.
Q: Two firms compete in prices in a market for a homogeneous product. In this market there are N > 0 co...
A: The equilibrium price is the price that is achieved where the demand curve of the market is equal to...
Q: Maia and Yousef just got married. Yousef recently graduated and received a master's degree in childh...
A: Here, when analyzing the given information it can be said that Mala and Yousef are unemployed due to...
Q: Which of the following statements correctly describe discouraged workers? (If none of the choices ap...
A: A discouraged worker is not part of labor force because the individual is not actively looking f...
Q: You are the Southeastern Michigan regional manager at Coca-Cola, responsible for production and pric...
A: Given inverse demand function P=10.25-0.00025Q TC for coca cola = 0.25q
Q: B. Under market condition, firms make normal profits in the long run.
A: To find : Under which market firm make profit in long run.
Q: We have looked at different methods for calculating the cost of meals (food cost + production cost +...
A: Actual food costs can be used for the calculation of meal costs. A cost-plus pricing strategy can be...
Q: d on Megan's and Larry's respective willingness to pay, plot the market demand curve on the followin...
A: Assume that there is a market- market for apartment. The price of each apartment is $100,000. Suppos...
Q: According to the Law of Elasticity, there are elastic and inelastic markets. If we relate this conce...
A: In a market with elastic demand for products it will be favorable to decrease prices because for suc...
Q: The life-cycle model explains comparative advantage as follows: a. at the invention stage, ...
A: The life-cycle model After the Heckscher-Ohlin model failed to describe the observed pattern of inte...
Step by step
Solved in 3 steps with 1 images
- Consider a two-period consumption saving model and let f1 and f2 denote the first and secondperiod consumption, respectively. Assume that the interest rate at which the consumer may lend or borrowis 10%. Suppose that a consumer’s utility function is x (f1> f2) = f1 + 20√f2= The consumer first periodincome is L1 = $100 and the present value of her income stream is $330=(a) What is the optimal consumption stream (consumption bundle) of this consumer?(b) Is this consumer borrower or lender? How much does she borrow or lend?(c) What is the effect of a reduction of the interest rate to 5% on the consumer’s optimal first-periodsaving? (Make sure to take into account the effect of the decline in the interest rate on the present value ofthe consumer’s income stream.)Consider the intertemporal consumption problem of Mr Cronus between two periods, say this yearand next year. His utility function takes the form U (c1; c2) = pc1 +0:97pc2, where c1 and c2 arehis consumption this and next year respectively. It can be shown (and you do not have to) thatthis utility function satis es diminishing marginal rate of substitution.His yearly income is stable at 100 unit (let say a unit is ten-thousand). He faces di¤erent interestrates between borrowing and saving. Speci cally, the saving interest rate is 0:02, whereas theborrowing interest rate is 0:04.(a) Describe the budget set facing Mr Cronus.(b) Is Mr Cronus a borrower? Explain your answer.(c) Is Mr Cronus a saver? Explain your answer.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 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? (b) Now suppose that instead of y = 100 the consumer has y = 140 Again, determine optimal consumption in the current and future periods and optimal saving, and show this in a dia gram. Is the consumer a lender or a borrower? (c) Explain the differences in your results be tween parts (a) and (b).
- A decision maker allocates an endowment of W > 0 dollars across two periodst = 1, 2. He discounts the future by β ∈ (0, 1) while facing a gross interest rateof R > 1. His utility is the same as studied in class. Solve for the intertemporalchoice problem. Show that the optimal consumption is decreasing over time ifβR < 1, constant over time if βR = 1, and increasing over time if βR > 1.Clare is contemplating her possible consumption patter for this year and next. She know that she will have income of $50,000 this year and $55,000 next yea. Her plan is to consume $40,000 this year (t=0). She is also going to invest 30,000. This investment has a positive NPV of $450. She decides to take the investment; in addition, the return on the investment is 9.62%. What consumption she can expect at t=1? (show a detailed procedure)Assume a consumer has current-period income y = 200, future-period income y′ = 150, current and future taxes t = 40 and t′ = 50, respectively, and faces a market real interest rate of r = 0.05, or 5% per period. The consumer would like to consume according to the following utility function: U (c, c′ ) = ln(c) + ln(c′ ). Show mathematically the lifetime budget constraint for this consumer. Find the optimal consumption in the current and future periods and optimal saving. Suppose that instead of r = 0.05 the interest rate is r = 0.1. Repeat parts (a) and (b). Does the substitution effect or the income effect dominate?
- Consider an individual who lives for two periods and has utility of lifetime consumption U = log(C1) + 1/1+δ log(C2), where C1 and C2 are the consumption levels in the first and second period respectively, and δ, 0 1 > 0 in the first period and no income in the second period, so Y2 = 0. He can transfer some income to the second period at a before-tax rate of return of r, so saving $S in the first period gives $[1 + r]S in the second period. The government levies a capital tax at rate τ on capital income received in the second period. The tax proceeds are paid as a lump-sum transfer to the following generation. The present generation does not care about the next one. a. What is the lifetime consumption profile of this individual? What is his lifetime indirect utility function expressed as a function of Y1 and b. Evaluate the change in initial income Y1 that is required to compensate the individual for the welfare loss due to the capital income tax τ. c. What is…Seung’s utility function is given by U = ln(C), where C is consumption. She makes $30,000 per year and enjoy jumping out of airplanes. There's a 5% chance that in the next year, she will break both legs, incur medical costs of $15,000, and lose an additional $5,000 from missing work. (a) What is Seung’s expected utility without insurance? (b) Suppose Seung can buy insurance that will cover the medical expenses but not the forgone part of her salary. How much would an actuarially fair policy cost, and what is her expected utility if she buys it? (c) Suppose Seung can buy insurance that will cover her medical expenses and forgone salary. How much would such a policy cost if it's actuarially fair, and what is her expected utility if she buys it?2. Mr. A has the following utility function and budget constraints: Max 0.1Ln(C1) + 0.7Ln(C2) Subject to S1 + C1 = 100 C2 + S2 = (1 + r)S1 where C1 and C2 are consumption level at young and that at old respectively. Likewise, S1 and S2 are saving at young and saving at old respectively. a) Find out Mr. A’s optimal consumption levels (i.e. C1*, C2*) and optimal savings (i.e. S1*, S2*) in terms of interest rate r. b) Show clearly the results in part a) in a suitable diagram (with C1 as x-axis and C2 as y-axis). c) Is Mr. A a saver ? or a borrower ? d) If r is equal to 0 (i.e. saving gives no returns), will Mr. A still choose to save when he is young (i.e. is S1 still bigger than 0) ? Why ? e) Suppose that Mr. A is not allowed to save (i.e. S1 = 0). What are his optimal consumption levels ? Show his optimal consumption levels in the same diagram you prepare for part a) (with a suitable indifference curve). f) If r increases,…
- Assume Marco is initially borrowing and investing 100, with a return on investment of 50% and an interest rate on borrowing at 10%. The return on investment falls to 5%. Which statements are correct? Select one or more: A. Marco’s decision to continue to invest will depend on his preference between consumption today and consumption in the future. B. Marco will wish to invest and borrow, but he will be worse off than when the return to investment was 50%. C. If he continues to invest and borrow, the dashed line representing his new frontier will start at 105 on the y axis and be shallower than the solid red line, so he’ll continue to invest and borrow D. In the remaining questions, assume the central bank now cuts interest rates so that the real interest rate falls to zero. Marco will still not wish to invest and borrow. E. If he just invests his money in the bank instead, his frontier will cross the x axis at 100 and be steeper than the frontier if he invests.…Seung's utility function is given by U - C^(1/2), where C is consumption and C^(1/2) is the square root of consumption. She makes $50,625 per year and enjoys jumping out of airplanes. There's a 5% chance that in the next year, she will break both legs, incur medical costs of $30,000, and lose an additional $5,000 from missing work. a. What is Seung's expected utility without insurance? b. Suppose Seung can buy insurance that will cover the medical expenses but not the forgone part of her salary. How much would an actuarially fair policy cost, and what is the expected utility if she buys it? Policy cost: $___ Expected utility: ___ c. Suppose Seung can buy insurance that will cover her medical expenses and foregone salary. How much would such a policy cost if it's actuarially fair, and what is her expected utility if she buys it? Policy cost: $___ Expected Utility: ___John and Peter are two representative consumers/investors who maximize the utility of consumption. John's utility of consumption is characterized as ln(x) + 2ln(y) while Peter puts more weight on the current consumption level and has a utility function of 2ln(x) + ln(y). John has a wealth of ($10, $20) thousand, while Peter has a wealth of ($20, $15) thousand now and next year, respectively. (a) What are the optimal consumption plans forJohn and Peter,respectively,if the interest rate is 5% per annum? (b) If John and Peter are the only investors/consumers, what is the equilibrium interest rate? (c) Further to part (b), how much do they borrow or lend to each other?