Consider a nation whose citizens behave according to Friedman's Permanent Income Hypothesis. They live for two periods:
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Consider a nation whose citizens behave according to Friedman's Permanent Income Hypothesis. They live for two periods: They earn 50 in the first period, 125 in the second, and taxes and the (net) interest rate are both zero. Both periods matter equally, so the rate of time preference is also zero. They don’t save for future generations. Give precise numerical answers to the following questions:
1. What is consumption in Period 1? What is it in Period 2?
2. How much do people save/borrow/dissave in each period?
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