Macroeconomics
4th Edition
ISBN: 9780393602487
Author: Jones, Charles I.
Publisher: W. W. Norton & Company
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Question
Chapter 16, Problem 5E
a)
To determine
Equation for today and future consumption, if β ≠ 1.
b)
To determine
Equation for today and future consumption, if β = 1.
c)
To determine
Equation for today consumption, if β < 1.
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What is the Euler equation for consumption and what is
What is the Euler equation for consumption, and what is its economic interpretation?
What is the Euler equation for consumption and what is
these bottom two are solved I am just struggling with how to graph the consumption function and the breakeven condition for this problem and to Point out the income and consumption values relevant for these problems:
3. The marginal propensity to consume (MPC) is 0.75, which means that households spend 75% of each additional dollar of income. The starvation-level consumption is 6, which means that households will consume at least 6 dollars, regardless of their income.
Therefore, the amount that households will save can be found by subtracting their minimum consumption level from their gross income, multiplying the difference by the MPC, and subtracting the lump-sum tax:
Savings = (1 - MPC) * (Gross Income - Starvation-level Consumption) - Lump-sum Tax
Savings = (1 - 0.75) * (40 - 6) - 10
Savings = 0.25 * 34 - 10
Savings = 1.5
Therefore, households will save $1.5.
3. a) How should the lump-sum income tax change to allow households to save 3?
To allow households to save…
Describe how the endogeneity versus exogeneity of consumption expenditures (i.e., the household sector) affects the size of predicted output multipliers by an input-output model.
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