Question

suppose that permanent income is calculated as the average of income over the past 5 years

Answer 1

complete question

solution

a)

$YP=\frac{1}{5}(Y_{t}+Y_{t-1}+Y_{t-2}+Y_{t-3}+Y_{t-4})\\\frac{1}{5}\times (20000+20000+20000+20000+20000)\\=\$20000$

b)

$YP=\frac{1}{5}(Y_{t+1}+Y_1+Y_{t-1}+Y_{t-2}+Y_{t-3}+Y_{t-4})\\\frac{1}{5}\times (30000+20000+20000+20000+20000)\\=\$22000$