Macroeconomics
10th Edition
ISBN: 9781319105990
Author: Mankiw, N. Gregory.
Publisher: Worth Publishers,
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Chapter 19, Problem 5QR
To determine
Examples for time inconsistent preferences.
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Sally wants to take out her entire savings from her superannuation to spend today. Is this acting in a time inconsistent manner (according to behavioural economics)?
a) Yes b) No
Explain:
“According to the Random-Walk Hypothesis of Consumption under Uncertainty, individuals don’t need to optimise their consumption over time since the consumption is totally unpredictable” True or False?
Explain how time inconsistency accounts for procrastination.
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- When managing time, consumers should consider time as if it were: (a) money or a scare resource (b) A commodity (c) A personal goal (d) A free resourcearrow_forwardI have uploaded the question and my answer can you check if it's correct?arrow_forwardFred is planning his consumption over two time periods. Fred's preferences for consumption in period and two can be represented by the following utility function: U(c,,c,) = C +(1+p) C" , where pis the subjective discount rate, and c;,c, is consumption in the first and second period. Fred's income in the first period is y, and grows by g % from the first period to the second period. Fred has access to perfect financial markets. The rate of interest is r>0. (a) Derive Fred's demand functions for consumption in the two periods as functions of p,r , y and g. (b) Derive Fred's demand for borrowing/saving as a function of p,r, y and g. (c) Give a condition involving the relationship between r and g for when Fred will borrow and when he will save.arrow_forward
- Please don't use AI to solve these questionsarrow_forwardA personal economic decision that was driven by a behavioral bias rather than by pure rational behavior.arrow_forwardWhat is incrementalism? How does it impact decision making? How does it differ from the rational-comprehensive theory? Provide an example.arrow_forward
- According to the basic discounting principle, individuals value current consumption (i.e. consumption now) more than future consumption (i.e. consumption tomorrow). A) True B) Falsearrow_forwardSuppose that we have an economy with many identical households. There is a government that exogenously consumes some output and pays for it with lump sum taxes. Lifetime utility for a household is: U =InCt +ßlnCt+1 The household faces two within period budget constraints given by: Ct + St = Yt – Tt Ct+1 =Yt+1 -Tt+1 +(1+rt)St Use the Euler equation and intertemporal budget constraint to derive an expression for the consumption function. The government faces two within period budget constraints: (1) G_t + SG_t = T_t (2) G_(t+1) = T_(t+1) + (1 + r_t)SG_t In equilibrium, what must be true about S_t and SG_t?arrow_forwardWhich one of the following is the best example of someone acting according to the assumptions of the traditional neoclassical model? -Dori studies hard for her test so she can eventually land a great job. -Alenia buys groceries for her sick neighbor out of kindness. -Marc buys a pack of cigarettes out of habit. -Chip buys an exercise machine based on a TV ad, even though research has shown that the machine is ineffective.arrow_forward
- what is unrealistic about friedman consumption theory ?arrow_forwardEconomist Gerd Gigerenzer characterizes heuristics as “fast and frugal” ways of reaching decisions. Are there any costs to heuristics being “fast and frugal”? Explain and give an example of how a fast and frugal method for doing something in everyday life comes at some costs in terms of other attributes forgone.arrow_forwardWhy would planned investments might be different than actual investments? And what does it mean?arrow_forward
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