Question

Suppose that permanent income of consumption is calculated as the average of income over the past 5 years,that is YP=1/5(Y+Y-1+Y-2+Y-3+Y-4.Suppose that consumption is given by C=0.9YP.
a.If you have earned GH 20000 per year for the past 10 years.What is your permanent income

Answer 1

$YP \ = \frac{1}{5}(Y + Y_1 + Y_2 + Y_3+ Y_4)$

I)

$YP = \frac{1}{5} \times (20000 \times 5)$

$YP = 20000$