ps4ans - Economics 202 Principles of Macroeconomics Name: _...

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Economics 202 Name: _______________ Principles of Macroeconomics Professor Melick Problem Set #4 Due Monday February 14, 2005 1. Numerical Problem #8 from Abel and Bernanke Chapter 4, found on page 153. For parts c through f of this question, Abel and Bernanke state “. . he wants to have the same level of consumption in both the current and future period.” Assume that this statement means that the consumer wants the present value of consumption in the future period to equal the present value of consumption in the current period. a) 210 1 . 0 1 110 20 90 1 = + + + = + + + = r y a y PVLR f b) ( ) ( ) ( ) ( ) ( ) ( ) PVLR r y a y c c y r a y c c r c y a y c or y r c a y c r y a y r c c PVLR PVLC f f f f f f f f f f = = + + + = + + + = = = + + = + + + = = + - + + = + + - + = + + + = + + = 210 1 . 0 1 110 20 90 1 then 0 if 231 110 1 . 1 20 90 1 then 0 if 1 1 1 1 f c 231 210 c c) We are told that r c c f + = 1 . Substituting this into the constraint that PVLR PVLC = gives us 15 105 90 105 210 1 2 1 1 - = - = - = = = + + + = + + + = + + = c y s c r y a y c r y a y r c c PVLR PVLC f f f d) 5 . 9 5 . 110 101 5 . 110 221 1 . 1 110 20 101 1 ' 2 - = - = - = = = + + = + + + = c y s c r y a y c f
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e) 20 110 90 110 220 1 . 1 121 20 90 1 2 ' - = - = - = = = + + = + + + = c y s c r y a y c f f) 5 . 20
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ps4ans - Economics 202 Principles of Macroeconomics Name: _...

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