MACROECONOMICS W/SAPLING PLUS
10th Edition
ISBN: 9781319258900
Author: Mankiw
Publisher: MAC HIGHER
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Question
Chapter 19, Problem 5PA
(a)
To determine
The preference for the type of savings account.
(b)
To determine
The change in the preference.
(c)
To determine
The choices and the theories of consumption.
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Students have asked these similar questions
You are looking to build a model of consumer choice between consumption today
and consumption tomorrow. Explain what utility function you would use and the type
of preferences that it would represent.
Jason spends his entire budget on coffee and doughnuts. You have the following data on his
choices:
Table 1: Jason's consumption choice and budget
Price / cup of coffee Price / doughnut cups purchased doughnuts purchased Income
February
2
1
4
22
March
5/2
3/4
10
8
31
April
3
1/2
8
14
31
Assume Jason 's preferences are monotone, the same over the three months, and that he has no
way to save or borrow across periods. Are Jason's choices consistent with utility maximization?
Which of the following two effects of a decrease in the tax rate on saving would raise savings?
a. the income effect and the substitution effect
b. the income effect but not the substitution effect
c. the substitution effect but not the income effect
d. neither the substitution effect nor the income effect
Chapter 19 Solutions
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