A consumer is making saving plans for this year and next. She knows that her real income after taxes will be ​$ in both years. Any part of her income saved this year will earn a real interest rate of ​% between this year and next year.​ Currently, the consumer has no wealth ​(no money in the bank or other financial​ assets, and no debts​). There is no uncertainty about the future. The consumer wants to save an amount this year that will allow her to (1) make college tuition payments next year equal to $12,600 in real terms; (2) enjoy exactly the same amount of consumption this year and next year, not counting tuition payments as part of next year's consumption; and (3) have neither asserts nor debts at the end of next year.
A. How much should the consumer save this year? How much should she consume? How are the amounts that the consumer should save and consume affected by each of the following changes (taken one at a time, with other variables held at their original values)?
B. Her current income rises from $50,000 to $54,200.
C. The income she expects to receive next year rises from $50,000 to $54,200.
D. During the current year she receives an inheritance of $1050 (an increase in wealth, not income).
E. The expected tuition payment for next year rises from $12,600 to $14,700.
F. The real interest rate rises form 10% to 25%.
An economy has full-employment output of 6000. Government purchases, G, are 1200. Desired consumption and desired investment are Cd = 3600-2000r. + 0.10Y, and Id = 1200 - 4000r, where Y is output and r is the real interest rate.
A. Find an equation relating the desired saving, Sd, to r and Y
B. Using the goods market equilibrium condition, find the real interest rate that clears the goods market. Assume that output equals full-employment output.
C. Government purchases rise to 1440. How does this increase change the equation describing the desired saving? What happens to the market-clearing real interest rate?