Question

Your current income is equal to 40,000

Your next period​ (future) income is known to be equal to 44,000.
If your current consumption expenditure is equal to 32,000​, what is your​ (current) level of​ savings?
If the real rate of interest is equal to 15%, how much will you spend on consumption next period​ (assuming that your current consumption is 32,000​)?

Answer 1

Answer: The answer is given below

Step-by-step explanation:

Assume that the individual lives for two periods which are present and future.

The individual savings in the present period will be:

= current income - current consumption

= 40000- 32000

= 8000

Interest income earned on the savings:

= 15% of savings

= 0.15 × 8000

= 1200

Therefore, the consumption in future period will be the sum of the next period income, the savings from current period and interest income that is earned on the savings.

Consumption in next period:

= 44000 + 8000 + 1200

= 53200