JNU 2011 Doubts

[Ayushya Kaul]

I had a little hard time going about solving some Macro questions from JNU 2011 Paper:
https://docs.google.com/file/d/0B6IWcTxlhduOcUN2blRkSEZWbDA/edit

I can't copy and paste the questions, since they are in pdf format, so apologies in advance.

My main doubts are regarding Questions 16-22.

Also I needed helping going about Question 24-27.

Any sort of help would be greatly appreciated. Thanks :)

[Ankit Agrawal]

I need help in 16-22 as well.

Q 24) Consumer's expected value of earnings in the middle age

= (25% of 5000 p.m. + 75% of 10,000 p.m.) for 20 years
= (1250+7500)*12*20
= 21 lacs

Answer (d) None of the above

Q 25) The nominal interest rate is zero. Hence, The present value of the total earnings will be equal to the actual value.
Earnings in the youth:

= 2500*12*20
= 6 lacs


Earnings in the middle age= 21 lacs
Earnings in the youth= 6 lacs
Total earnings= 27 lacs

Answer (c) 27

Q 26) The variables X, Y, Z, p represent the following:

X= The higher amount that the consumer will earn, i.e., 10,000
Y= The lower amount that the consumer will earn, i.e., 5000
Z= the amount being offered by the insurance company,i.e., 7615
p= Probability of receiving X, i.e. 75%

The consumer will reject the offer if,

Z< Y + (2p/3)(Y-X)

Substituting the values,

7615< 5000 + (2(75%)/3)(10000-5000)
7615< 5000 + (1/2)5000
7615< 7500,
which is not true.

Hence the consumer will accept the offer

Answer (a) yes

Q 27) Total lifetime earnings= 27 lacs

Divide it by (60 years*12 months)

You get Rs. 3750 per month. This is the amount that the consumer can spend per month continuously for his whole life. He is earning Rs. 2500 p.m. in his youth. He can spend the remaining 1250 by borrowing it and  then later repaying it from his higher middle age earnings. Hence his 'savings' will be negative.

Answer (b) -1250

[Ayushya Kaul]

Bump.

Q 16-22.
Any takers please?