Susan is certain to live just two periods and receives an income of 10,000 in the first
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Question:
Susan is certain to live just two periods and receives an income of 10,000 in the first period, and 15,000 in the second. She has no other assets. The real interest rate is 8%.
(a) As she begins the first period, what is the present value of her lifetime resources?
(b) IF she choose to consume the exact same amount in both periods (c1 = c2), what would be her consumption in the first (and second) period? SHOW YOUR WORK.
(c) Bill has the exact same income (and life expectancy) of Susan, but chooses to consume 15,000 in the first period. How much will he consume in the second.
Related Book For
Managerial Economics and Strategy
ISBN: 978-0321566447
1st edition
Authors: Jeffrey M. Perloff, James A. Brander
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