How Would Each of the Following Affect Cheryl Shirker's Current

question 78

Essay

How would each of the following affect Cheryl Shirker's current consumption and saving? Cheryl is a forward-looking consumer with no borrowing constraints.
(a)Cheryl's firm announces a reorganization plan,increasing Cheryl's future income dramatically.
(b)Cheryl's father,who had planned to leave her a large bequest,must spend all his wealth on medical bills after a prolonged illness.
(c)The real interest rate rises from its original level.Cheryl originally planned to have no assets for the future; that is,she planned to spend all her original assets and all her income when she was young,and planned to consume an amount equal to her future income when she was old.

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Definitions:

Keynesian Approach

An economic theory stating that government intervention through fiscal and monetary policy is necessary to manage economic fluctuations.

President Reagan

Ronald Reagan, the 40th President of the United States, served from 1981 to 1989, known for his conservative policies and the economic doctrine referred to as "Reaganomics."

Classical Economists

A group of 18th- and 19th-century economists who believed in the theory that markets operate best without government interference, focusing on the importance of free markets for economic development.

Quantity Theory

An economic theory that suggests the general price level of goods and services is directly proportional to the amount of money in circulation.