Consider the intertemporal budget constraint in the context of the two-period life-cycle model. When there is no tax on interest income, the slope of the intertemporal budget constraint is -1.2. When there is a percentage tax interest income, the slope of the intertemporal budget constraint becomes -1.15. What is the percentage tax rate on interest income
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Consider the intertemporal budget constraint in the context of the two-period life-cycle model. When there is no tax on interest income, the slope of the intertemporal budget constraint is -1.2. When there is a percentage tax interest income, the slope of the intertemporal budget constraint becomes -1.15. What is the percentage tax rate on interest income
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- U = c¹/² + Bc¹²/2 tt+1 A) Suppose that the household faces two within period budget constraints of the form: C++ 1 = Y++1 + (1+r)s Combine the two period budget constraints into one intertemporal budget constraint. B) Use the intertemporal budget constraint and this utility function to derive the Euler equation characterizing an optimal consumption plan. C) Use this Euler equation and the intertemporal budget constraint to derive a consumption function expressing cas a function of Y, Y₁+1, and rt.Describe how the endogeneity versus exogeneity of consumption expenditures (i.e., the household sector) affects the size of predicted output multipliers by an input-output model.What is the value of autonomous expenditure in the following macroeconomic model? C= 1,000 + 0.75Y Consumption function I= 500 Investment function G= 600 Government spending function NX =-300 Net export function Y = C+1+ G + NX Equilibrium condition 800 O 1,800 O 2,400 O 7,200 O
- Using this Intertemporal Budget Constraint how can you solve for C2 (consumption in period 2)Using the market for loanable funds, assuming MPC ≠ 1. Suppose a government that taxed all interest income changed its tax law so that the first $5,000 of a taxpayer’s interest income was tax-free. Explain the economic outcome AND support your answer with a graph.Consider the following two-period consumption-saving model: Max C (BC2)}, C1,C2 subject to the following constraints Y1 = C1+S, Y2 = C2 – (1+r)S. 1. Solve for the intertemporal budget constraint 2. Draw the budget constraint (in a graph) with Y1 = 140, Y2 = 70, and r=0.25. Be sure to label the maximum values of C¡ and C2 on the y-axis and x-axis. 3. Suppose that ß = 0.8, solve for the optimal values of consumption, C and C5. %3D 4. Compare your consumption function for period 1 to a consumption function suggested by John Maynard Keynes (the so-called Keynesian consumption function). Are they different? 5. When r does down, how does C1 change? Does it increase or decrease? Show this mathe- matically. 6. Compute the marginal propensity to consume in period 1. Does this fall in the range sug- gested by Keynes?
- Consider the following two-period consumption-saving model: Max C (BC2)}, C1,C2 subject to the following constraints Y1 =C1+S, Y2 = C2 – (1+r)S. 1. Solve for the intertemporal budget constraint 2. Draw the budget constraint (in a graph) with Y1 = 140, Y2 = 70, and r=0.25. Be sure to label the maximum values of C¡ and C2 on the y-axis and x-axis. 3. Suppose that ß = 0.8, solve for the optimal values of consumption, C and C5. 4. Compare your consumption function for period 1 to a consumption function suggested by John Maynard Keynes (the so-called Keynesian consumption function). Are they different? 5. When r does down, how does Ci change? Does it increase or decrease? Show this mathe- matically. 6. Compute the marginal propensity to consume in period 1. Does this fall in the range sug- gested by Keynes?a. Discuss the assumptions of the Fisher’s Intertemporal Choice Model b. Using Fisher's Intertemporal Choice model, consider the following scenario:i. Suppose Milo earns $1,750 in the first period and $2,500 in the second period. If he consumes $1,200 in the first period and $1,550 in the second period, what is the interest rate? ii. Now if Milo’s consumption changes to $1,800 in the first period and $2,000 in the second period, what is the new interest rate? c. Graphically depict and explain the Consumer’s optimum in the Fisher’s Intertemporal Choice Model.Describe what would cause the budget constraint to shift from BC1 to BC2.
- In the dynamic model, there is a government that imposes lump-sum taxes on the household and spends. The consumption demand function in period 1 is CP = 0.2(Y1 + (Y2/R) – T1 – (T2/R)) - and the consumption demand function in period 2 is C2 = 0.8(RY1 + Y2 – RT1 – T2). - We have Y1 = 100, Y2 = 180, G1 = 20, G2 = 12, R = 1.2. If the government has a balanced budget each period, the equilibrium level of household consumption in period 1 equals 44. What is the equilibrium level of household consumption in period 1 if the government does not change its spending but it changes taxes so that it has a deficit instead of having a balanced budget in the first period? 44 100 120 80The following graph shows the market for loanable funds. For each of the given scenarios, adjust the appropriate curve on the graph to help you complete the questions that follow. Treat each scenario separately by resetting the graph to its original state before examining the effect of each individual scenario. (graph in image) Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the interest income earned on bonds or deposits is taxed at a rate of 20%. Now suppose there is an increase in the tax rate on interest income, from 20% to 25%. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to (a. fall, b. rise) and the level of investment spending to (a. increase, b. decrease). Scenario 2: An investment tax credit effectively lowers the tax bill of any firm that purchases…The model of national economy is characterised by the following data: Household consumption C-400+0.9 DI Gross investment Ig 200 Government spending G-250 Sum of Taxes T-150 Disposable income DI = Y-T Calculate: a) Equilibrium level of income Y; b) Calculate the value of Marginal propensity to consume and value of Marginal propensity to save; c) Private consumption at macroeconomic equilibrium; d) Develop equation of saving and calculate amount of saving at the point of equilibrium level of income.
