Question

Suppose we have a two-period model. An individual earns labor income Y0 =$100k at time zero,...

Suppose we have a two-period model. An individual earns labor income Y0 =$100k at time zero, and earns no labor income at time 1. The individual may consume or save that income. Savings grow at rate r=.03. For every dollar of consumption, the individual pays the tax rate τ=.30 to the government.

  1. Graph the two-period budget constraint for consumption. What is the slope? Is this tax distortionary?
  2. The government modifies the consumption tax somewhat so that the first $20k of consumption in each period is tax free. Now graph the budget constraint.
Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

If you are satisfied with a answer plz upvote thank you i really need that

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
3. Consider an individual who lives for two periods. His income in the first period is...
3. Consider an individual who lives for two periods. His income in the first period is !Y1 and his income in the second period is Y2. His consumption in the first period is !C1 and his consumption in the second period is C2. He can lend and borrow at zero real interest (!r = 0 ). (a) Write his budget constraint (again, assume !r = 0 ). (b) Assume that the government collects a lump sum tax of !T units...
Imagine an individual who lives for two periods. The individual has a given pattern of endowment...
Imagine an individual who lives for two periods. The individual has a given pattern of endowment income (y1 and y2) and faces the positive real interest rate, r. Lifetime utility is given by U(c1, c2)= ln(c1)+β ln(c2) Suppose that the individual faces a proportional consumption tax at the rate Ԏc in each period. (If the individual consumes X in period i then he must pay XԎc to the government in taxes period). Derive the individual's budget constraint and the F.O.C...
Beta lives for two periods. In period 1, Beta works and earns a total income of...
Beta lives for two periods. In period 1, Beta works and earns a total income of $2, 000. If she consumes $c1 in period 1, then she deposits her savings of 2, 000 − c1 dollars in a bank account that gives her an interest rate of 10% per period. (Notice that Beta is not able to borrow in period 1, so c1 ≤ 2, 000.) In period 2, Beta leads a retired life and receives $110 in social-security income....
Beta lives for two periods. In period 1, Beta works and earns a total income of...
Beta lives for two periods. In period 1, Beta works and earns a total income of $2, 000. If she consumes $c1 in period 1, then she deposits her savings of 2, 000 − c1 dollars in a bank account that gives her an interest rate of 10% per period. (Notice that Beta is not able to borrow in period 1, so c1 ≤ 2, 000.) In period 2, Beta leads a retired life and receives $110 in social-security income....
Mark lives for two periods, earning $50; 000 in income in period 1, which he divides...
Mark lives for two periods, earning $50; 000 in income in period 1, which he divides between current period consumption and saving for period 2. The interest rate on his saving is 10% per period. (a) The government is considering three tax proposals. Write down Mark's intertemporal budget constraint in each of the following case, draw the corresponding budge line, and label the intercepts and slope. (i) a 10% tax on labor income. (ii) a 10% tax on consumption in...
If Lupita’s income at t=1(current period) is $150,000 and her income att=2(future period) will be $110,000....
If Lupita’s income at t=1(current period) is $150,000 and her income att=2(future period) will be $110,000. a.Show algebraically and using a graph,what is Lupita’s possible maximum present consumption (at t=1), a.k.a.the Present Value of lifetime income, and possible maximum future consumption (at t=2), a.k.a. the Future Value of lifetime income,if the market interest rate between period t=1 and period t=2is 10%. b.If Lupita chooses to save $50,000 at period t=1 (c1: present consumption), how much can she consume at period...
In the simple ________ model of consumption, we consider a(n) ________ period lifetime. a. Marxian; one...
In the simple ________ model of consumption, we consider a(n) ________ period lifetime. a. Marxian; one b. neoclassical; two c. constant rate of risk aversion; T d. Stone-Geary; infinite e. Keynesian; one In the intertemporal budget constraint, wealth is equal to: a. financial plus “human” wealth. b. lifetime income. c. savings held in stocks and bonds. d. the overall stock of assets held by future generations. e. financial wealth. Which of the following represents human wealth? a. the level of...
Consider an individual who lives two periods. He works in both periods and receives a labor...
Consider an individual who lives two periods. He works in both periods and receives a labor income of 200 euros in the first period and 220 euros in the second. The interest rate of the economy is 10%. The consumption in period 1 is c1, and in period 2 it is c2. The price of the consumption good is 1 in both periods. The utility function of this individual is U(c1,c2 )=c11/2c21/2. Suppose there is a proportional tax on labor...
Smith lives in a world with two time periods: current period and future period. His income...
Smith lives in a world with two time periods: current period and future period. His income in each period is $10,000. A) Draw his intertemporal budget constraint when the interest rate is 33%. B) If Smith consumes $10,000 in each period, show his best affordable bundle and the indifference curve that passes through it. C) Graphically show how Smith's current consumption changes when the interest rate falls to 0%.
Consider an individual who lives for two periods, earns a nominal income of $1000 in each...
Consider an individual who lives for two periods, earns a nominal income of $1000 in each period, and has zero initial and terminal assets. The nominal interest rate, R, on dollar loans is 15%, and the expected rate of inflation, πe, between the two periods is 10%. Assume that the price level in the first period is 1. A. What is the real value of period 1 income? B. What is the maximum amount of dollars that could be borrowed...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT