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Lectures in Macroeconomics- Charles W. Upton Consumption A Life Cycle Extension.
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Lectures in Macroeconomics- Charles W. Upton Consumption A Life Cycle Extension
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Transcript of Lectures in Macroeconomics- Charles W. Upton Consumption A Life Cycle Extension.
Lectures in Macroeconomics- Charles W. Upton
Consumption
A Life Cycle Extension
Consumption-A Life Cycle Extension
2
The Basic Fisherian ModelcL
cNz
Consumption-A Life Cycle Extension
3
The Basic Fisherian ModelcL
cNz
People live for four periods. Same
idea, but graphs are not as useful.
Consumption-A Life Cycle Extension
4
The Basic Fisherian Model
11 4
1zc
Our consumption
function
Consumption-A Life Cycle Extension
5
The Basic Fisherian Model
22
11
3
14
1
zc
zc
Consumption-A Life Cycle Extension
6
The Basic Fisherian Model
33
22
11
2
13
14
1
zc
zc
zc
Consumption-A Life Cycle Extension
7
The Basic Fisherian Model
44
33
22
11
2
13
14
1
zc
zc
zc
zc
Consumption-A Life Cycle Extension
8
The Basic Fisherian Model
log(c1) + log(c2) + log(c3) + log(c4)
Consumption-A Life Cycle Extension
9
The Basic Fisherian Model
log(c1) + log(c2) + log(c3) + log(c4)
3
4
2
321
3
4
2
321
1
1
1
1
1
1
1
1
1
1
1
1
ry
ry
ryyz
zr
cr
cr
cc
Consumption-A Life Cycle Extension
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The Basic Fisherian Model
log(c1) + log(c2) + log(c3) + log(c4)
γ1log(c1) + γ2log(c2) + γ3log(c3) + γ4log(c4)
Consumption-A Life Cycle Extension
11
Some Assumptions
Period Wage Rate
1 0
2 300,000
3 630,000
4 0
r= 50%
Consumption-A Life Cycle Extension
12
Period One Calculations (1) (1) Initial Assets 0 (2) Interest Income 0 (3) Financial Net Worth 0
(4) Wage Income 0 (5) PV of Wage Income 480,000 (6) Wealth 480,000 (7) Consumption 120,000
(8) Net Income 0 (9) Saving 120,000 (10) Assets, End of Period 120,000
Consumption-A Life Cycle Extension
13
Period One Calculations
(1) (1) Initial Assets 0 (2) Interest Income 0 (3) Financial Net Worth 0
(4) Wage Income 0 (5) PV of Wage Income 480,000 (6) Wealth 480,000 (7) Consumption 120,000
(8) Net Income 0 (9) Saving 120,000 (10) Assets, End of Period 120,000
000,630)5.01(
1000,300
5.01
12
z
Consumption-A Life Cycle Extension
14
Period One Calculations (1) (1) Initial Assets 0 (2) Interest Income 0 (3) Financial Net Worth 0 (4) Wage Income 0 (5) PV of Wage Income 480,000 (6) Wealth 480,000 (7) Consumption 120,000
(8) Net Income 0 (9) Saving 120,000 (10) Assets, End of Period 120,000
zc4
1
Consumption-A Life Cycle Extension
15
Period One Calculations
(1) (1) Initial Assets 0 (2) Interest Income 0 (3) Financial Net Worth 0 (4) Wage Income 0 (5) PV of Wage Income 480,000 (6) Wealth 480,000 (7) Consumption 120,000 (8) Net Income 0 (9) Saving 120,000 (10) Assets, End of Period 120,000
Consumption-A Life Cycle Extension
16
Period One Calculations (1) (1) Initial Assets 0 (2) Interest Income 0 (3) Financial Net Worth 0
(4) Wage Income 0 (5) PV of Wage Income 480,000 (6) Wealth 480,000 (7) Consumption 120,000
(8) Net Income 0 (9) Saving 120,000 (10) Assets, End of Period 120,000
Consumption-A Life Cycle Extension
17
Period Two Calculations
(1) (2) (1) Initial Assets 0 120,000 (2) Interest Income 0 60,000 (3) Financial Net Worth 0 180,000
(4) Wage Income 0 300,000 (5) PV of Wage Income 480,000 630,000 (6) Wealth 480,000 480,000 (7) Consumption 120,000 180,000
(8) Net Income 0 240,000 (9) Saving 120,000 60,000 (10) Assets, End of Period 120,000 60,000
Consumption-A Life Cycle Extension
18
Period Two Calculations
(1) (2) (1) Initial Assets 0 120,000 (2) Interest Income 0 60,000 (3) Financial Net Worth 0 180,000
(4) Wage Income 0 300,000 (5) PV of Wage Income 480,000 630,000 (6) Wealth 480,000 480,000 (7) Consumption 120,000 180,000
(8) Net Income 0 240,000 (9) Saving 120,000 60,000 (10) Assets, End of Period 120,000 60,000
Consumption-A Life Cycle Extension
19
Period Two Calculations (1) (2) (1) Initial Assets 0 120,000 (2) Interest Income 0 60,000 (3) Financial Net Worth 0 180,000 (4) Wage Income 0 300,000 (5) PV of Wage Income 480,000 720,000
(6) Wealth 480,000 540,000 (7) Consumption 120,000 180,000
(8) Net Income 0 240,000 (9) Saving 120,000 60,000 (10) Assets, End of Period 120,000 60,000
000,6305.1
1000,300
Consumption-A Life Cycle Extension
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Period Two Calculations
(1) (2) (1) Initial Assets 0 120,000 (2) Interest Income 0 60,000 (3) Financial Net Worth 0 180,000 (4) Wage Income 0 300,000 (5) PV of Wage Income 480,000 720,000 (6) Wealth 480,000 540,000 (7) Consumption 120,000 180,000
(8) Net Income 0 240,000 (9) Saving 120,000 60,000 (10) Assets, End of Period 120,000 60,000
zc3
1
Consumption-A Life Cycle Extension
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Period Two Calculations
(1) (2) (1) Initial Assets 0 120,000 (2) Interest Income 0 60,000 (3) Financial Net Worth 0 180,000 (4) Wage Income 0 300,000 (5) PV of Wage Income 480,000 720,000 (6) Wealth 480,000 540,000 (7) Consumption 120,000 180,000 (8) Net Income 0 240,000 (9) Saving 120,000 60,000 (10) Assets, End of Period 120,000 60,000
Consumption-A Life Cycle Extension
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Period Two Calculations
(1) (2) (1) Initial Assets 0 120,000
(2) Interest Income 0 60,000 (3) Financial Net Worth 0 180,000
(4) Wage Income 0 300,000 (5) PV of Wage Income 480,000 720,000 (6) Wealth 480,000 540,000 (7) Consumption 120,000 180,000 (8) Net Income 0 240,000 (9) Saving 120,000 60,000 (10) Assets, End of Period 120,000 60,000
Consumption-A Life Cycle Extension
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Period Three Calculations
(1) (2) (3) (1) Initial Assets 0 120,000 60,000 (2) Interest Income 0 60,000 30,000 (3) Financial Net Worth 0 180,000 90,000
(4) Wage Income 0 300,000 630,000 (5) PV of Wage Income 480,000 720,000 630,000 (6) Wealth 480,000 540,000 540,000 (7) Consumption 120,000 180,000 270,000
(8) Net Income 0 240,000 600,000 (9) Saving 120,000 60,000 330,000 (10) Assets, End of Period 120,000 60,000 270,000
Consumption-A Life Cycle Extension
24
Period Three Calculations
(1) (2) (3) (1) Initial Assets 0 120,000 60,000 (2) Interest Income 0 60,000 30,000 (3) Financial Net Worth 0 180,000 90,000
(4) Wage Income 0 300,000 630,000 (5) PV of Wage Income 480,000 720,000 630,000 (6) Wealth 480,000 540,000 540,000 (7) Consumption 120,000 180,000 270,000
(8) Net Income 0 240,000 600,000 (9) Saving 120,000 60,000 330,000 (10) Assets, End of Period 120,000 60,000 270,000
Consumption-A Life Cycle Extension
25
Period Three Calculations (1) (2) (3) (1) Initial Assets 0 120,000 60,000 (2) Interest Income 0 60,000 30,000 (3) Financial Net Worth 0 180,000 90,000 (4) Wage Income 0 300,000 630,000 (5) PV of Wage Income 480,000 720,000 630,000 (6) Wealth 480,000 540,000 540,000 (7) Consumption 120,000 180,000 270,000
(8) Net Income 0 240,000 600,000 (9) Saving 120,000 60,000 330,000 (10) Assets, End of Period 120,000 60,000 270,000
33 2
1zc
Consumption-A Life Cycle Extension
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Period Three Calculations
(1) (2) (3) (1) Initial Assets 0 120,000 60,000
(2) Interest Income 0 60,000 30,000
(3) Financial Net Worth 0 180,000 90,000
(4) Wage Income 0 300,000 630,000 (5) PV of Wage Income 480,000 720,000 630,000 (6) Wealth 480,000 540,000 540,000 (7) Consumption 120,000 180,000 270,000
(8) Net Income 0 240,000 600,000 (9) Saving 120,000 60,000 330,000 (10) Assets, End of Period 120,000 60,000 270,000
Consumption-A Life Cycle Extension
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Period Four Calculations
(1) (2) (3) (4) (1) Initial Assets 0 120,000 60,000 270,000 (2) Interest Income 0 60,000 30,000 135,000 (3) Financial Net Worth 0 180,000 90,000 405,000
(4) Wage Income 0 300,000 630,000 0 (5) PV of Wage Income 480,000 720,000 630,000 0 (6) Wealth 480,000 540,000 540,000 405,000 (7) Consumption 120,000 180,000 270,000 405,000
(8) Net Income 0 240,000 600,000 135,000 (9) Saving 120,000 60,000 330,000 270,000 (10) Assets, End of Period 120,000 60,000 270,000 0
Consumption-A Life Cycle Extension
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Period Four Calculations
(1) (2) (3) (4) (1) Initial Assets 0 120,000 60,000 270,000 (2) Interest Income 0 60,000 30,000 135,000 (3) Financial Net Worth 0 180,000 90,000 405,000
(4) Wage Income 0 300,000 630,000 0 (5) PV of Wage Income 480,000 720,000 630,000 0 (6) Wealth 480,000 540,000 540,000 405,000 (7) Consumption 120,000 180,000 270,000 405,000
(8) Net Income 0 240,000 600,000 135,000 (9) Saving 120,000 60,000 330,000 270,000 (10) Assets, End of Period 120,000 60,000 270,000 0
Consumption-A Life Cycle Extension
29
Period Four Calculations
(1) (2) (3) (4) (1) Initial Assets 0 120,000 60,000 270,000 (2) Interest Income 0 60,000 30,000 135,000 (3) Financial Net Worth 0 180,000 90,000 405,000
(4) Wage Income 0 300,000 630,000 0 (5) PV of Wage Income 480,000 720,000 630,000 0 (6) Wealth 480,000 540,000 540,000 405,000 (7) Consumption 120,000 180,000 270,000 405,000
(8) Net Income 0 240,000 600,000 135,000 (9) Saving 120,000 60,000 330,000 270,000 (10) Assets, End of Period 120,000 60,000 270,000 0
Consumption-A Life Cycle Extension
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And in Conclusion…
• This lecture focuses on mechanics.
• Later lectures focus on ideas.
Consumption-A Life Cycle Extension
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End
©2005 Charles W. Upton. All rights reserved
