Answer:
Consumption this year=$40,000
Explanation:
Given Data:
Income this year= $60,000
Income Next year= $40,000
Market Interest Rate= 10% per year
Consumption next year=$62,000
Required:
Consumption this year=?
Solution:
Difference in amount for next year= Consumption next year-Income Next year
Difference in amount for next year=$62,000- $40,000
Difference in amount for next year=$22,000
This is the more amount which is required to spend $62,000 next year.
Consumption this year=[tex]Income\ this\ year-\frac{Difference\ in\ amount\ for\ next\ year}{1+Market\ interest\ rate}[/tex]
[tex]Consumption\ this\ year=\$60,000-\frac{\$22,000}{1+0.1}\\Consumption\ this\ year=\$40,000[/tex]
Consumption this year=$40,000
