Q: The average income of farmers is less than the average income of
The average income of farmers is less than the average income of non-farmers, but fluctuates more from year to year. Given this, how does the permanent-income hypothesis predict that estimated consump...
See AnswerQ: Actual data do not give consumption at a point in time,
Actual data do not give consumption at a point in time, but average consumption over an extended period, such as a quarter. This problem asks you to examine the effects of this fact. Suppose that cons...
See AnswerQ: In the model of Section 8.2, uncertainty about future
In the model of Section 8.2, uncertainty about future income does not affect consumption. Does this mean that the uncertainty does not affect expected lifetime utility?
See AnswerQ: Suppose instantaneous utility is of the constant-relative-risk-
Suppose instantaneous utility is of the constant-relative-risk-aversion form, u(Ct)=C1−θ t /(1−θ),θ>0. Assume that the real interest rate, r, is constant but not necessarily equal to the discount rate...
See AnswerQ: In the setup described in Problem 11.10, suppose that
In the setup described in Problem 11.10, suppose that w is distributed uniformly on [μ−a,μ+a] and that C V, and rejects it if ˆw
See AnswerQ: Suppose that Ct equals [r/(1+r)]{At
Suppose that Ct equals [r/(1+r)]{At +∞ s =0 Et [Yt+s]/(1+r)s}, and that At+1 =(1+r )(At +Yt −Ct). (a) Show that these assumptions imply that Et[Ct+1]=Ct (and thus that consumption follows a random wal...
See AnswerQ: Consider the two-period setup analyzed in Section 8.4
Consider the two-period setup analyzed in Section 8.4. Suppose that the government initially raises revenue only by taxing interest income. Thus the individual’s budget constraint is C1 +C2/[1+(1− τ)r...
See AnswerQ: Consider a stock that pays dividends of Dt in period t and
Consider a stock that pays dividends of Dt in period t and whose price in period t is Pt. Assume that consumers are risk-neutral and have a discount rate of r; thus they maximize E[∞ t=0 Ct/(1+r)t ]....
See AnswerQ: Consider the setup of the previous problem without the assumption that lims
Consider the setup of the previous problem without the assumption that lims→∞ Et [Pt+s/(1+r)s]=0. (a) Deterministic bubbles. Suppose that Pt equals the expression derived in part (b) of Problem 8.8 pl...
See AnswerQ: Consider a firm that produces output using a Cobb Douglas combination of
Consider a firm that produces output using a Cobb Douglas combination of capital and labor: Y=KαL1−α,0
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