Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Macroeconomics Expert

1) Consider two consumers, A and B. A and B both wish for perfect consumption smoothing (c = cf) and both have no present wealth. Though, the two consumers have different income streams. Person A’s current income, yA, = 100, and future income, yfA, = 121. Person B’s current income, yB, is 120, and future income, yfB, = is 99. The real interest rate is 10%.
(a) Compute the current value of lifetime resources (PVLR) for consumer A and consumer B, respectively.

(b) Draw consumer A’s budget constraint. How does the budget constraint of consumer A compare to the budget constraint of consumer B? Describe
(c) Find consumer A’s most favourable lifetime consumption plan, (cA, cfA). How does consumer B’s optimal lifetime consumption plan, (cB, cfB), compare to consumer A’s lifetime consumption plan? Describe.

(d) Consumer A is a present saver or a present borrower? describe. Is consumer B a present saver or a present borrower? describe.

(e) Draw a graph which demonstrates how the increase in the interest rate (above 0.10) will affect the budget constraints of consumer A and consumer B. How does the budget constraint of consumer A compare to the budget constraint of consumer B?

2) Fred’s Frisbees is trying to find out how many Frisbee pressing machines to buy for its new factory. The real price of a new pressing machine is 7500 Frisbees. The depreciation rate on these Frisbee presses is equal to 10% per year. The expected future marginal product of these fabricating machines is given by the expression 3350 – 20K, measured in Frisbees. The real interest rate is 8% (.08).

(a) What is the user cost of capital?

(b) What is the profit-maximizing number of Frisbee presses for Fred’s to buy for its new factory?

(c) Before purchasing the machines Fred’s finds that it will be subject to a new tax of 32.5 percent on all of its revenue. Now what is the profit maximizing number of machines for Fred’s to purchase? (Round to the nearest whole number.)

3) Desired consumption for an economy is given by the equation
Cd = 1000 + .6Y – 4000r.
Government purchases are given by G = 1500.
(a) prepare the expression relating desired saving, Sd, to Y and r.

(b) Assume the full-employment level of output is 10,000. Graph the relationship between desired saving, Sd, and the real interest rate r. (graph must comprise properly labelled axes and an indication of scale on every axis.)

(c) If desired investment for a economy is given by the equation
Id = 2000 – 6000r, compute the equilibrium real interest rate for the economy.

(d) Using the equilibrium real interest rate which you coputed in part (c), compute the equilibrium level of saving, investment, and consumption in the economy.
Does Y = C + I + G in equilibrium?

(e) Add the relationship between desired investment and the real interest rate to your graph in part (b), and show equilibrium values of r, Sd and Id from parts (c) and (d)

4) Analyze the effects of each of the following on national saving, investment, and the real interest rate. describe your reasoning and illustrate it with an appropriate diagram.

(a) Consumer confidence falls, so consumers decide to consume less and save more at every level of the real interest rate.

(b) A new technology breakthrough increases the future marginal product of capital and expected future income.

Macroeconomics, Economics

  • Category:- Macroeconomics
  • Reference No.:- M9823

Have any Question? 


Related Questions in Macroeconomics

Describe what occurs to american imports and exports when

Describe what occurs to American imports and exports when the U.S. dollar is strong. Describe what occurs to American imports and exports when the U.S. dollar is weak What precautions can the Federal Reserve take to avoi ...

How does the monopolist determine price please

How does the monopolist determine price? Please Explain.

Question 1nbspa state the general meaning of elasticity as

Question 1  a) State the general meaning of elasticity as it applies to economics. Define the price elasticity of demand. b) A storm destroys half the banana crop. Is this event more likely to hurt banana farmers if the ...

Let the exchange rate be defined as the number of dollars

Let the exchange rate be defined as the number of dollars per Japanese yen. Assume there is an increase in U.S. interest rates relative to that of Japan. (Part A) Would this event cause the demand for the dollar to incre ...

According to the immigrant assimilation related studies the

According to the immigrant assimilation related studies, the typical earnings profiles of immigrants start lower and literature, born. In the space are steeper than the earnings profiles of the native for years below, u ...

Economics for international affairs assignmentplease answer

Economics for International Affairs Assignment Please answer five out of six questions. Q1. The Federal Reserve used an expansive monetary policy program called quantitative easing to deal with the financial crisis and p ...

What happens to interest rate and price level when

What happens to interest rate and price level when investment spending increase?

1 part a evaluate the fundamental arguments between

1. (Part A) Evaluate the fundamental arguments between Keynesians and Monetarists concerning the level of government involvement in our economy to minimize the impact and stabilize the different stages of the business cy ...

Consider a labour market without any government subsidy and

Consider a labour market without any government subsidy and where the market wage is equal to w and all workers are endowed with the same total amount of time T. a) The government, in an attempt to encourage labor supply ...

Toys r us of arlington sells sports cars for little kids

Toys R Us of Arlington sells sports cars for little kids; during 2014 it sold a monthly average of 23,000 units for $13 per car. In early January 2015, Toys R Us major competitor, Walmart cut the price of its sport car t ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro