Question

In: Economics

Consider the following lifecycle model of consumption. Minjoonhas 60 years of life remaining. He plans...

Consider the following lifecycle model of consumption. Minjoon has 60 years of life remaining. He plans to work 30 more years from now and then retire. He earns $1,000 per year while he is working and has $200 per year pension income after retirement. He currently has $6,000 of savings. He wants equal consumption every year. The interest rate is zero.

Q4. What will be Minjoon’s annual consumption?

a) $200. b) $600. c) $700. d) $1,000.

Q5. Which of the following statements regarding this lifecycle model is (are) correct?

I. Minjoon’s MPC is 0.6.

II. At the moment of retirement, the amount of wealth Minjoon will have is $12,000.

a) None of the above. b) I only. c) II only. d) I and II.

Expert Solution

Q.4.

Minjoons annual consumption would be

$200 as he wants equal consumption every year with the interest rates to be zero.

so , the consumption will be 200 as after retirement, his income would be of $200 only.

Q5.

MPC = CHANGE IN CONSUMPTION / CHANGE IN INCOME

MPC = 200/ 800 = 0.25

At retirement ,his wealth would be ,

30,000 + 6,000 -( 6,000)

= 30,000

the correct answer is none of the above.

Rahul Sunny answered 2 years ago

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