Question
1. Assume i=0%, beta=1. Consumer has income of 80 in year 1, 100 in year 2. Now suppose gov't gives consumers a free check of
1. Assume i=0%, beta=1.
Consumer has income of 80 in year 1, 100 in year 2. Now suppose gov't gives consumers a free check of 10 in year 1. Suppose consumers are naive (they don't anticipate the free check is financed by borrowing from China, which needs to be paid back through more tax in period 2), consumer will consume ____ in year 1.
Hint: when consumers are naive, they will believe they have 80+10=90 income in period 1, and 100 income in period 2.
2. Assume i=0%, beta=1.
Consumer has income of 80 in year 1, 100 in year 2. Now suppose gov't gives consumers a free check of 10 in year 1. Suppose consumers are naive (they don't anticipate the free check is financed by borrowing from China, which needs to be paid back through more tax in period 2).
Consumer actually consumes ____ in year 2.
Hint: when consumers are naive, they will believe they have 80+10=90 income in period 1, and 100 income in period 2. Hint 2: when year 2 comes, gov't needs to pay back the debt.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Statistics Principles And Methods
Authors: Richard A. Johnson, Gouri K. Bhattacharyya
7th Edition
8126557745, 470904119, 978-0470904114
