Consider a two-period model in which the goverment introduces a tax on interest earnings. This means that borrowers pay a net interest rate of r, however lenders (savers) receive a net interest ate of (1-t) r on their savings, where t is the tax rate withheld by the government and is a multiplication sign. Let r = 8 percent and t = 28 percent. Consider a consumer who is a saver. Answer parts a), b), c) and d) below. Round your numerical answer in part a) to 3 decimal places. ). The relative price of consumption today to consumption tomorrow for this saver is ). Suppose the tax rate increases. How does the saver's relative price of consumption today change? OA. Consumption today has the same price relative to consumption tomorrow. OB. Consumption today becomes relatively more expensive OC. Consumption today becomes relatively cheaper ). As a result, the substitution effect shows that OA. Consumption today increases, while consumption tomorrow decreases OB. Consumption today remains unchanged, which consumption tomorrow increases OC. Consumption today declines, while consumption tomorrow increases

Let's incorporate the labor-leisure trade-off and capital income taxes in the two-period model. Let c₁, c₂ be consumption in two periods, I the number of hours worked, Te Te the proportional taxes on consumption in 2 periods, s the saving rate, w the wage rate, b pension in the 2nd period, and 7, the tax on savings (capital income tax). The household's maximization problem in this case is: given by max₁,02,8,1-1 log(c₁) + log (1-1)+5log (c₂) such that (1+T₁₁) C₁+s=(1-7)wl and (1+T₂)C₂ = [1+r(1-T)]s+b, where measures how the household values leisure vis-a-vis consumption.

Labor Market Y = α (5N – 0.0025N2), where α = 2; N = labor The supply of labor, NS isNS = 55 + 10(1-t)w where t- tax rate = 0.5, w = real wage rate Good Market The desired consumption, Cd is Cd = 300 + 0.8(Y – T) – 200rWhere Y = income, T = taxes, r = real interest rate T= 20 + 0.5YG= 50Desired investment, Id:Id = 258.5 – 250r Money Market Demand for money, Md/P: Md/P = 0.5Y – 250(r + πe), where πe = 0.02 (expected inflation) Money supply = Ms = 9150 a)Find the equilibrium w, Y and N.b)Find the IS-curve and the equilibrium r, C and I.c)Find the LM-curve and the equilibrium P.d)If G increased to 72.5, find the equilibrium w, P, N, r, C and I.e)Discuss the differences between the equilibrium values in d) with a), b) and c). What is your conclusion with regard to the effectiveness of fiscal policy in this model?

1/2 of the population is unemployed with $500 in income; the other 1/2 are employed and earn $50,000 each individual has the utility function: U=4x(1/2) where x=individual's income Proposal 1) government taxes everyone with income at a flat rate of 10%. From the tax revenue, the government will refund the same amount to each person; regardless of their income Proposal 2) government taxes everyone at a flat rate of 10%. It will refund the same amount to each person according to the percentage of taxes paid. Question: compare the proposals under the utilitarian and Rawlsian social welfare functions. How do these proposals rank under each social welfare function? (all calculations can be done on a per-capita basis).

Scenario 21-3  Scott knows that he will ultimately face retirement. Assume that Scott will experience two periods in his life, one in which he works an earns income, and one in which he is retired and earns no income. Scott can earn $250,000 during his working period and nothing in his retirement period. He must both save and consume in his work period with an interest rate of 10 percent on savings.  Refer to Scenario 21-3. If the interest rate on savings increases,  a. Scott will always increase his savings in the work period.  b. Scott will increase his savings in the work period if the income effect is greater than the  substitution effect for him.  c. Scott will decrease his savings in the work period if the income effect is greater than the substitution effect for him.  Od. Scott will decrease his savings in the work period if the substitution effect is greater than the income effect for him.  C

Assume you can work as many hours you wish at £12 per hour (net of tax). If you do not work, you have no income. You have no ability to borrow or lend, so your consumption, c, is simply equal to your income. Derive and plot the feasible set, between daily values of consumption c, and “leisure”, l.  Label the values at the intercepts (the points where the feasible frontier cuts the two axes).

Consider a 2-period economy populated with consumers that have the same income and the same preferences. There is also a government whose objective is to spend 60 in period 0 and 150 in period 1. This government can issue bonds in period 0. Each bond pays an interest rate r. Consumers can also issue bonds at the same interest rate. Consumers' optimal decisions, given r, imply that aggregate consumption C0* is equal to 2/3(Yo – To) + 2/3(Y1 – T1)/(1+r). Suppose that Yo = 300 and that income is expected to remain at this level in period 1. A major recession begins in period 0. As a result, economic activity falls by 18 in period 0. National income is expected to fall by 20 in period 1. Consumers believe these economists. a) Use a graph to explain why the equilibrium interest rate r falls from 0.25 to 0.2 in period 0 because of this recession. c) Economists were wrong. The recession does not continue into period 1 so that y1 remains at 300. How does this new information affect consumers?…

Consider the following​ one-period model. Consumer Utility function over consumption​ (C) and leisure​ (L) ​ U(C,L)= C^(1/2)L^(1/2) = Total​ hours: H​ = 40 Labour​ hours: ​= H​ – L ​Non-labour income:​ π ​Lump-sum tax: T Hourly​ wage: w Firm Production​ function: Y​ = ​zF(​) ​= z Total factor​ productivitiy: z​ = 2 Government Government spending​ (exogenous): G​ = 20 Suppose that the total factor​ productivity, z, increases to 5. What is the substitution effect of this wage change on labour ​supply(​)? A. ​+8.51 B. ​-5.51 C. ​-8.51 D. ​+5.51 E. None of the above

John has the following utility function U(C₁, C2) = min{c₁ + ac2, C2}, where C₁ and c₂ are his consumption in periods 1 and 2, respectively and a is some positive constant. Suppose John has $100 income in period 1 and $105 income in period 2. Prices in both periods are $1. Question 2 Part al Suppose a = 2. If John can freely borrow and lend at 5% interest rate what would be his optimal consumption in both periods? 1 Question 2 Part a2 Suppose a = 2. Now, John can lend at 5% interest rate, but can't borrow at all. What would be his optimal consumption in both periods? Question 2 Part bl Suppose a 0.5. If John can freely borrow and lend at 5% interest rate what would be his optimal consumption in both periods? Question 2 Part b2 Suppose a 0.5. Now, John can lend at 5% interest rate, but can't borrow. What would be his optimal consumption in both periods?

Calua is an economy in which people live for three periods. They receive an endowment in only one period as follows: 80 goods when young, or 90 goods when middle-aged or 115 goods when old. The real interest rate in Calua is 10%. Given this information, what endowment should a typical person choose? Assume the interest rate increases to 15%. Which endowment should a typical person now choose?