econ probs (1 Viewer)

[mouse]

I'm stuck on this problem:

A consumer is making saving plans for this year and next. She knows that her real income after taxes will be $50,000 in both years. Any part of her income saved this year will earn a real interest rate of 10% between this year and next year. Currently, the consumer has no wealth.

The consumer wants to save an amount this year that will allow her (1) to make college tuition payments next year equal to $12,600 in real terms, (2) enjoy exatcly the same amount of consumption this year and next year, not counting tuition payments as part of next year's consumption; and (3) have neighter assets 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 recieve next year rises from $54,000 to $54,200.

d. during the current year she recieves n 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 from 10% to 25%.

thanks!

 

[Newbie]

is this a maths question

dont worry this wont be in the hsc

............
............
ok that was probably a lie
i just cant do it

 

[pigs_can_fly]

well i never came across anything this hard in ecos last year, or the year before that

 

[abdooooo!!!]

Originally posted by mouse
a. how much should the consumer save this year? how much should she consume?

what does the second bit suppose to mean? if you solve the first bit then why don't you just minus the second one with 50000??? its essentially the same question isn't it?

i don't actually do economics so im not very familiar with them technical terms and their implication like "real interest"... so i might i have a wrong understanding. but anyways here is how i solved how much should the cosumer save this year bit:

x + (1.1)x = 12600
x = 12600/2.1
x = 6000

 

[abdooooo!!!]

for:

b. save the same amount but consume 54,200 - 6000 = 48200

c. what the??? rises from $54,000 to $54,200... how does that work? isnt the initial conditions 50000 for both years?

d. x + (1.1)x = 12600 - 1050
x = 5500

e. x + (1.1)x = 14700
x = 7000

f. x + (1.25)x = 12600
x = 5600



if you want a logical explaination of why i did such and such just ask me... as i said i prolly got the whole idea of the question wrong in the first place because of the jargon. but this is the type of economics that i like not the essays on lame societal issue...

hopefully there is heaps of math in uni for eco...

 

[mouse]

Re: Re: econ probs

Originally posted by abdooooo!!!
what does the second bit suppose to mean? if you solve the first bit then why don't you just minus the second one with 50000??? its essentially the same question isn't it?

i don't actually do economics so im not very familiar with them technical terms and their implication like "real interest"... so i might i have a wrong understanding. but anyways here is how i solved how much should the cosumer save this year bit:

x + (1.1)x = 12600
x = 12600/2.1
x = 6000

i think the second bit is just a filler question meant to play mind tricks on the student. did you use calculus to solve this?

 

[mouse]

Originally posted by abdooooo!!!
for:

b. save the same amount but consume 54,200 - 6000 = 48200

c. what the??? rises from $54,000 to $54,200... how does that work? isnt the initial conditions 50000 for both years?

d. x + (1.1)x = 12600 - 1050
x = 5500

e. x + (1.1)x = 14700
x = 7000

f. x + (1.25)x = 12600
x = 5600



if you want a logical explaination of why i did such and such just ask me... as i said i prolly got the whole idea of the question wrong in the first place because of the jargon. but this is the type of economics that i like not the essays on lame societal issue...

hopefully there is heaps of math in uni for eco...

can you explain how you solved this stuff? did you use calculus? thanks

 

[abdooooo!!!]

calculus? multivariable? ahaha... nah unless you change the question from real to fake interest... like its compounding continously every moment without gaps and have different variables affecting it like in real life situations in the economy... then we have a calculus situation.

the algebraic math in this question is essentially very very simple... but the logics of getting to the starting equation is a bit difficult because of the conditions... here is how i thought about the question:

1. all money must be consumed.
2. therefore equal savings must be applied to both years by the conditions of equal consumption for both years and equal income.
3. savings for both years must add up to 12600 to pay for tuition (remember tuition does not count as consumption which simplifies the question), but savings for the first year gains 10% interest (ie 1.1 times of original).

hence the equation: (1.1)x + x = 12600, then you solve it from there... straight foward algebra.

all the other question are just changing the variables from the first one.

 

[mouse]

o i c, interesting.

im stuck on this problem:

you have just taken a job that requires you to move to a new city. in relocating, you face the decision of whether to buy or rent a house. a suitable house costs $200,000 and you have saved enough for the down payment. the (nominal) mortgage interest rate is 10% per year, and you can also earn 10% per year on savings. mortgage interest payments are tax deductable, interest earnings on savings are taxable, and you are in a 30% tax bracket. interest is paid or recieved, and taxes are paid, on the last day of the year. the expected inflation rate is 5% per year.

the cost of maintaining the house (replacing wornout roofing, painting, and so on) is 6% of the value of the house. assume that these expenses also are paid entirely on the last day of the year. if the maintenance is done, the house retains its full real value. there are no other relevant costs or expenses.

a. what is the expected after-tax real interest rate on the home mortgage?

b. what is the user cost of the house?

c. if all you care about is minimizing your living expenses, at what (annual) rent level would you be just indifferent between buying a house and renting a house of comparable quality? rent is also paid on the last day of the year.

thanks!

 

[Newbie]

what subject is this?
home economics?

 

[abdooooo!!!]

lol home economics... ahahaha.

ok i can't really understand what the question means because of the stupid words like tax bracket and user cost.

so i'll do the question based on my intepretation of the question here:

a. simply is 7% isn't it? because the thing is tax deductable (my understanding is that it counts as minus income so less tax on your income), so after-tax it should be 10%*(100% - 30%) = 7%

b. 200000 - (200000*1.05 - 200000*1.05*0.06) + 200000*0.07 = 16600 per year

c. isn't this the same as the above question? i mean the user cost of owning a house is the cost one would pay to rent a house. so the answer should be the same. unless it wants you to count savings interests for renting a house... but the amount of the savings is not given in the question

because the dude could well have a million bucks in the bank as savings if he/she didn't pay the downpayment of the house... you know what i mean.... unless i misunderstood the question.

 

[mouse]

Originally posted by Newbie
what subject is this?
home economics?

intermediate macroeconomics.

 

[mouse]

Originally posted by abdooooo!!!
lol home economics... ahahaha.

ok i can't really understand what the question means because of the stupid words like tax bracket and user cost.

so i'll do the question based on my intepretation of the question here:

a. simply is 7% isn't it? because the thing is tax deductable (my understanding is that it counts as minus income so less tax on your income), so after-tax it should be 10%*(100% - 30%) = 7%

b. 200000 - (200000*1.05 - 200000*1.05*0.06) + 200000*0.07 = 16600 per year

c. isn't this the same as the above question? i mean the user cost of owning a house is the cost one would pay to rent a house. so the answer should be the same. unless it wants you to count savings interests for renting a house... but the amount of the savings is not given in the question

because the dude could well have a million bucks in the bank as savings if he/she didn't pay the downpayment of the house... you know what i mean.... unless i misunderstood the question.

it looks like i have to read this stuff more than once to understand. thanks though.

 

[Newbie]

this is macro wtf?????
anyway
you might be better off asking in the uni forum

 

[mouse]

yup this stuff is macro.

anyone know how to solve this problem:

the missing link chain-link fence cmpany is trying to determine how many chain-link frabricating machines to buy for its factory. if we define a chain-link fence of some specified length to be equal to one unit of output, the price of a new fabricating machine is 60 units of output, and the price of a one-year old machine is 51 units of output. these relative prices are expected to be the same in the future. the expected future marginal product of fabricating machines, measured in units of output, is 165 - 2k, where k is the number of machines in use. there are no taxes of any sort. the real interest rate is 10% per year.

a. what is the user cost of capital? specify the units in which yoyr answer is measured.

b. determine the number of machines that will allow missing link to maximize its profit.

c. suppose that missing link must pay a tax equal to 40% of its gross revenue. what is the optimal number of machines for the company?

d. suppose that in addition to the 40% tax on revenue described in part (c), the firm can take advantage of a 20% of the cost of any new machines purchased. what is missing link's desired capital stock now? (hint: an investment tax credit effectively reduces the price of capital to the firm.)

thanks!

 

[abdooooo!!!]

how many questions do you have... lol. did you solve the one before? i really can't understand the english of the question... annoying... should've learnt some finance jargon...

hey are you doing B economics? what units can you take in that? do you have to write heaps of essays like in the hsc type of economics??? i don't know if i should just do a B science and major in applied math and then do postgrad in econometrics.

 

[mouse]

^ yeah i solved the one before but i won't get the answers until next week. what's B economics?

the undergard economics program that i'm in consists of quantitative and qualitative stuff.

 

[abdooooo!!!]

Originally posted by mouse
^ yeah i solved the one before but i won't get the answers until next week. what's B economics?

the undergard economics program that i'm in consists of quantitative and qualitative stuff.

B= bachelors

hey like what units can you choose?

 

[mouse]

principles of macro and micro economics.
math for business analysis.
intermediate maro and micro economics.
Statistics I and II.
senior seminar.
economic electives like international econ, urban econ, econ of crime and justice...