Question 5: The Poverty Trap Model Suppose the relationship between income today, y, and income tomorrow,...

 

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Question 5: The Poverty Trap Model Suppose the relationship between income today, y, and income tomorrow, Ut+1, is given by: yt+1 = (y-2) +2 1. Using any online graphing calculator, plot the relationship between ye and ye+1, along with the 45 degree line. Take a screenshot and add it to your solutions. 2. Suppose your initial income is yo = 1.5. (a) What will your income in periods 1, 2, and 3 be? That is, what values will 31, 32, and ya take? (b) Is your income rising or falling over time? (c) Do you seem to be converging to a particular income level? 3. Inspect the figure from part 1. What point (provide the coordinates) represents the poverty trap? Question 5: The Poverty Trap Model Suppose the relationship between income today, y, and income tomorrow, Ut+1, is given by: yt+1 = (y-2) +2 1. Using any online graphing calculator, plot the relationship between ye and ye+1, along with the 45 degree line. Take a screenshot and add it to your solutions. 2. Suppose your initial income is yo = 1.5. (a) What will your income in periods 1, 2, and 3 be? That is, what values will 31, 32, and ya take? (b) Is your income rising or falling over time? (c) Do you seem to be converging to a particular income level? 3. Inspect the figure from part 1. What point (provide the coordinates) represents the poverty trap?

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