Macroeconomics 1st Edition by Dean Karlan,Jonathan Morduch

Exercise 7

Imagine that your personal finances are summarized by the account balances shown in Table 16P-6. Assume also that your decision to save is a function of your income and net worth. More specifically, assume that your savings each year will be equal to: 0.2I - NW, where "I" is your income and "NW" is your net worth.

a. If your income is $60,000, how much will you save this year?
b. Assume the value of your house decreases by 20 percent. What is your net worth now? How much will you save?