interest rate is 10%. The Permanent Income Hypothesis posits Henry will choose point (Select] If he moves along the budget line from A to B, Henry is (Select] If moves from C to B, Henry is [Select] efure Market (Good A) Henry 150.000 Income/Coniumtion Today
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![Before the virus, Henry makes $50,000 this year and expects to make $50,000 next year. The
interest rate is 10%.
The Permanent Income Hypothesis posits Henry will choose point (Select)
If he moves along the budget line from A to B, Henry is (Select]
If moves from C to B, Henry
[Select )
he fuure
Market (Good A)
Henry
550.000
D.
D.
Income/Coniumtion Today](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd26076b1-8500-43f4-86ac-3866f0031f54%2F964cb617-beb7-4508-8636-7ae50af8a8d5%2Fikhaf9f_processed.jpeg&w=3840&q=75)
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- According to the Permanent Income Hypothesis (PIH), what should a consumer do if she receives news that she will be demoted next year (and her salary will be halved)? Draw the paths of income and consumption for this consumer.What is meant by “excess sensitivity” of consumption? Is this view of consumption consistent with the permanent-income hypothesis? Explain. How does the stock market affect consumption according to the permanent-income hypothesis? Is this prediction in line with the empirical evidence? Explain.Q3: Consider the national income model: Y = C + I0 + G0 + (X0 − M)............. (1) C = a + byd, (a > 0,0 < b < 1)....... (2) Yd = Y − T..................................... (3) T = T0 + ty.................................... (4) M = M0 + my................................ (5) Where: (T) = taxes, (t) = income tax rate Identify: 1/ Endogenous variable(s). 2/Exogenous variable(s). 3/ Conditional equation. 4/Behavioral equations. 5/ Definitionalequation. 6/ Constants., give the Economic meaning of them. 7/ Coefficients. give the Economic meaning of them.
- Consumer has utility function ln(c1)+beta*ln(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 sophisticated (have rational expectation), then in the first period the consumer will consume c1=______.In the two-period Fisher model of consumption, suppose that the first period income is $5,000 and the second period income is $5,000 for both Matt and Paola. The interest rate is 10 percent. Matt’s lifetime utility function is C1 + C2 while Paola’s lifetime utility function is C1 + 0.8C2. If there is a borrowing constraint, whose consumption is affected by that?The following table gives the joint probability distribution between employmentstatus and college graduation among those either employed or lookingfor work (unemployed) in the working-age population of country A. a. Compute E(Y).b. The unemployment rate is a fraction of the labor force that is unemployed. Show that the unemployment rate is given by 1 − E(Y).c. Calculate E(Y l X = 1) and E(Y l X = 0).d. Calculate the unemployment rate for (i) college graduates and(ii) non–graduates.e. A randomly selected member of this population reports being unemployed.What is the probability that this worker is a (i) college graduate,(ii) non–graduate?f. Are educational achievement and employment status independent?Explain.
- Optimal unemployment insurance: Consider the following two proposals toreform unemployment insurance. Explain the arguments for and against eachreform.(a) Te insurance payment would be increased so that it replaced 100% of aworker’s regular labor income for 26 weeks.(b) Each worker would be paid a lump sum equal to 10 weeks of his or herlabor income at the start of the spell of unemployment. Tere would thenbe no other payments.Kevin's reference dependent utility over money is y and effort is E, refer to the: instantaneous utility function: rt: reference point for wealth, which demonstrated his recent wealth Kevin does not have from money but from gains and losses of money instead. There is no discounting, and assume that Kevin's current wealth from his job is 0. Kevin is thinking about a new role at work which allows him to increase his income by $1000 per period for two periods, counting from the current period, which is t = 0. He must undergo a training which require an effort of EO = 3500 at that value of alpha, how much ultility would Kevin lose relative to his non-projection-biased preferences if she took the position 1000 250 500 750In the United States, the average household in the top quintile (of total money income) contains fewer per True False
- What do we mean when we say that MRP is based on dependent demand?Consider the two-period household-maximization model discussed inclass. The model is modified in order to look at applications including credit constraints,interest-rate markups, and taxation. A representative household lives for two periods andmaximizes utility of consumption in period 1 and in period 2. The utility is represented bylog(c) where c denotes consumption. Assuming no discounting between period 1 and period 2. The maximization problem for the representative household can be written asmax{log c1 + log c2}c1 + a1 = y1 − τ1 + (1 + r)a0c2 = y2 − τ2 + (1 + r)a1where y1 and y2 denote income levels in period 1 and period 2, τ1 and τ2 are taxes in the twoperiods, and a0 and a1 denote the assets of the households in each period. a0 is exogenouslygiven. Assume the interest rate r = 0, and the government can borrow or save at the sameinterest rate so that its present-value budget constraint is given byg1 + g2 = τ1 + τ2where g1 and g2 are exogenous government expenditures in the two…Consider the two-period household-maximization model discussed in class. The model is modified in order to look at applications including credit constraints, interest-rate markups, and taxation. A representative household lives for two periods and maximizes utility of consumption in period 1 and in period 2. The utility is represented by log(c) where c denotes consumption. Assuming no discounting between period 1 and period 2. The maximization problem for the representative household can be written as below (see image): Question: Show consumption c1 and c2 (you can use algebraic or graphical methods). In theanswer, you should discuss whether a1 ≥ 0 or a1 < 0 and provide an economic interpretation.What determine(s) the sign of a1 and why?
