Assume That Andrew Marcus Is 25 Years Old and Expects $\$ 20$

question 15

Essay

Assume that Andrew Marcus is 25 years old and expects to live to age 75. a. If he wins $\$ 20$ million in cash (after taxes) in the lottery and retires, how much will he consume each year if he wants to have constant consumption and use up all his wealth by the time he dies? Assume the real interest rate is zero.
b. If his total income in the year he wins the lottery is his lottery winnings, what will his average propensity to consume (APC) be for that year?
c. If he has no other earnings in later years but continues his constant consumption, what will his average propensity to consume be for those later years?
d. What is Andrew's "permanent income" in the year he wins the lottery? What is his "transitory income"?

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Definitions:

Nonfinancial Firms

Companies that primarily deal in products and services rather than financial instruments and markets, such as manufacturing, retail, and technology firms.

Acquisitions

The process by which one company purchases most or all of another company's shares to gain control of that company.

Divestitures

Refers to the process of a company selling off or liquidating parts of its business or assets.

IFRS

International Financial Reporting Standards, a set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements.