please i need help with question e. could i please get all the steps of the answer
Consider the plight of LeBron James, who is currently a rookie in the National Basketball Association (NBA). LeBron was the first pick in the NBA draft, and has signed a number of lucrative contracts. Last year, when LeBron was a high school senior, he received a Hummer SUV equipped with three television sets and many other accessories. After an investigation, it was concluded that the Hummer had been purchased with a loan that LeBron's mother took out from a local bank. Let's analyze LeBron's behavior in the context of the two-period model of consumption behavior. a) (3 pts. At the time she applied for the loan, neither LeBron nor his mother had much current income. (In the terminology of the two-period model, yi was low). Why was the bank willing to lend to her? Briefly explain. b) (3 pts. Given what we assume about indifference curves in the two-period model, did it make sense for LeBron's mother to take out the loan for the Hummer? Briefly explain. Now let's analyze LeBron's situation more formally. Suppose that: y = income in period 1 = 80, ai - assets at the beginning of period 1 = 10. y2 - income in period 2 - 80, r-real interest rate = 100 percent per period. c) (2 pts.) What is the present value of the LeBron's lifetime resources (PVLR)? d) (10 pts. Now suppose that after attending a national basketball camp. LeBron becomes recognized as a future professional athlete. In particular, y increases by 180 units, so that yi 80. a 10, and y: 260. What is LeBron's PVLR now? Show graphically the effect of this change on consumption in both periods. Be sure to indicate by how much the budget line shifts. e) (11 pts. Now suppose instead LeBron injures his knee at the basketball camp. Fortunately, LeBron has insurance against such a mishap, so that even though he can no longer play basketball, the insurance payment increases his assets by 80 units, so that y, 80. a 90, and y. 80. What is LeBron's PVLR now" Which set of changes, the one in this part, or the one in part (d), will cause a bigger increase in c? In es? In saving? Briefly explain e) (11 pts.) Now suppose instead LeBron injures his knee at the basketball camp. Fortunately, LeBron has insurance against such a mishap, so that even though he can no longer play basketball, the insurance payment increases his assets by 80 units, so that y 80, a1 = 90, and y2 = 80. What is LeBron's PVLR now? Which set of changes, the one in this part, or the one in part (d), will cause a bigger increase in ci? In ce? In saving? Briefly explain. Consider the plight of LeBron James, who is currently a rookie in the National Basketball Association (NBA). LeBron was the first pick in the NBA draft, and has signed a number of lucrative contracts. Last year, when LeBron was a high school senior, he received a Hummer SUV equipped with three television sets and many other accessories. After an investigation, it was concluded that the Hummer had been purchased with a loan that LeBron's mother took out from a local bank. Let's analyze LeBron's behavior in the context of the two-period model of consumption behavior. a) (3 pts. At the time she applied for the loan, neither LeBron nor his mother had much current income. (In the terminology of the two-period model, yi was low). Why was the bank willing to lend to her? Briefly explain. b) (3 pts. Given what we assume about indifference curves in the two-period model, did it make sense for LeBron's mother to take out the loan for the Hummer? Briefly explain. Now let's analyze LeBron's situation more formally. Suppose that: y = income in period 1 = 80, ai - assets at the beginning of period 1 = 10. y2 - income in period 2 - 80, r-real interest rate = 100 percent per period. c) (2 pts.) What is the present value of the LeBron's lifetime resources (PVLR)? d) (10 pts. Now suppose that after attending a national basketball camp. LeBron becomes recognized as a future professional athlete. In particular, y increases by 180 units, so that yi 80. a 10, and y: 260. What is LeBron's PVLR now? Show graphically the effect of this change on consumption in both periods. Be sure to indicate by how much the budget line shifts. e) (11 pts. Now suppose instead LeBron injures his knee at the basketball camp. Fortunately, LeBron has insurance against such a mishap, so that even though he can no longer play basketball, the insurance payment increases his assets by 80 units, so that y, 80. a 90, and y. 80. What is LeBron's PVLR now" Which set of changes, the one in this part, or the one in part (d), will cause a bigger increase in c? In es? In saving? Briefly explain e) (11 pts.) Now suppose instead LeBron injures his knee at the basketball camp. Fortunately, LeBron has insurance against such a mishap, so that even though he can no longer play basketball, the insurance payment increases his assets by 80 units, so that y 80, a1 = 90, and y2 = 80. What is LeBron's PVLR now? Which set of changes, the one in this part, or the one in part (d), will cause a bigger increase in ci? In ce? In saving? Briefly explain
