Re: macro question pls solve

Posted by Dreyfus on Jun 26, 2014; 11:05am
URL: http://discussion-forum.276.s1.nabble.com/macro-question-pls-solve-tp7593623p7593648.html

Life time , T= 50 yrs
Years to retirement = 40 yrs
Life time income = (10*1.5)+(15*2)+(15*3) = 90 Lac
So optimal consumption to smooth it over the life time, C = Life time income/T = 90/50=1.8 lac/yr
APC is defined by C/Y where Y is annual income but in life cycle hypothesis it is assumed that Y is constant! But here Y is changing. So, The average Y must be taken (Weighted average with weights being 10, 15 nd 15) to get average yearly income, Y*.
Y* = ((10*1.5)+(15*2)+(15*3))/(40) = 2.25
Thus , lifetime APC = 1.8/2.25 = 0.8