In a closed economy, if households expect future income to be lower than expected and firms expect future productivity to be lower, then the real interest rate and equilibrium saving а. falls; falls b. falls; rises C. rises; falls d. rises; rises е. none of the other options
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- “Permanent Income of consumption is just the average of all current and future incomes. Thus, one does not need to do the maximisation of intertemporal utility”. True or False. Discuss according to the model. Note that you need to discuss according to the model?Given that the individual is a saver, show the impact of:i) An increase in interest rate on Current and future consumption levels when SE > IEii) A decrease in interest rate on Current and future consumption levels when SE < IEThe position of IS curve depends on_______. Select one: a. none of the given options b. rate of investment, c. rate of interest, d. autonomous expenditure
- Suppose that the real interest rate is 6%. Next, assume that some factors changes, such that the expected rate of return, declines by  two percentage points at each prospective level of investment. Assuming no change in the real interest rate, by how much and in what direction will the investment change?  which of the following might cause this change: (a) a decision to increase inventories; (b) an increase in excess production capacity.Suppose that Annie's real income this year is $150 and next year it will be $100. Assume that the real interest rate is 10%. How much can Annie consume this year if she borrows against all of her income next year? Round to the nearest whole dollar, type without units (e.g. 10).The neoclassical consumption model, a retirement perspective: Consider thespecial case solved in the text where ! = 1 and utility takes the log form.Suppose the real interest rate is 5 percent. Let’s give this consumer a fnancial profle that might look like that of a middle-aged college professor contem-plating retirement: initial assets are ftoday = $50,000, and the path for labor income is ytoday = $100,000 and yfuture = $10,000.(a) What is the individual’s human wealth? Total wealth?
- What could increase autonomous consumption (Ca)? a) An increase in the products price level. b) A decrease in consumer wealth. c) A decrease in income taxes. d) A decrease in the Index of Consumer Confidence e) An expectation of lower future inflationSuppose that an economy's net investment flow is I(t) = 2t + 10t1/2.Letting K(0) is the initial investment, use the definite integralto find the level of capital: a.Next 5 yearsb. Initial investment, K(0) = 100In Irving Fisher’s two period model, if the consumer is initially a saver and the interestrate and the first period consumption increases, then we can conclude that the incomeeffect:a) Was greater than the substitution effectb) Was less than substitution effectc) Exact offset the substitution effectd) And the substitution effect both increased consumption
- How is interest rate calculated when using intertemporal consumption between two periods. Can a formula be provided, please? Subject area intertemporal consumption (microeconomics) For reference : Income 1 Income 2 Consumption 1 Consumption 2 (How is the interest rate calculated if given the figures for Income 1, Income 2, Consumption 1 and Consunpmtion 2 . Please explainConsider an economy called Xanadu for which desired aggregate consumptiondepends on income, Y. and the real interest rate, r, according toCd =100+0.7Y - 200r.Xanadu's GDP is Y = 1000 and government spending on goods and services is G=180. Xanadu's desired future capital stock is given byK* = 140 - 100ucwhere luCdenotes the user-cost of capital. The price of capital is PK =2, thephysical depreciation rate is d =0.1 and the existing capital stock is K0= 50. Trapital stock between any period t and the following period t+1 evolves accordng toKt+1 = It+(1-d)Kt where It the level of investment. Assume throughout that net factor payments from abroad (NFP) is equal to zero.Suppose instead that Xanadu is a small open economy facing a world interest rate of 1%. It follows that Xanadu's current account position is equal toA) -16B) -51C) -6D) -8Use the two-period model from the Appendix to answer this question.Your current income is 40,000. Your next period (future) income is known to be 40,000.If your current consumption expenditure is 32,000, your (current) level of savings S=____(Enter your answer as a whole number.)
