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ONE PERIOD MODEL (representative households problem with taxes) Let's assume that the state taxes households with...
Consider the two-period model from Chapter 9, and assume there is one representative consumer with utility...
Consider the two-period model from Chapter 9, and assume there is one representative consumer with utility function uc,d) = Iníc) + In(d), so the time discount factor is 3 = 1. There is also a government that levies lump-sum taxes in the current and future periods. The government has expenditures of G = 580 in the current period and G' = 630 in the future period. (a) Suppose the consumer has current and future income (w.y') = (3500, 6510), and...
4) Assume utility of the representative consumer is (CD) = (1/21/2. Also assume h = the...
4) Assume utility of the representative consumer is (CD) = (1/21/2. Also assume h = the time constraint, a = dividend income, and T = lump-sum tax. Derive the normal and the inverse labor supply functions.
3. Consider a representative consumer who has preferences over an aggregate consumption good e and leisure....
3. Consider a representative consumer who has preferences over an aggregate consumption good e and leisure. Her preferences are described by the uility function: U(c,l) In(e) +In(l) The consumer has a time endowment of h hours which can be used to work at the market or enjoyed as leisure. The real wage rate is w per hour. The worker pays a proportional wage tax of rate t, so the worker's after-tax wage is (1 t). The consumer also has dividend...
4. A recurring idea in Congress is to move the United States further away from a...
4. A recurring idea in Congress is to move the United States further away from a system of income taxes and towards a system of consumption taxes. A nationwide consumption tax would essentially be a national sales tax, a system that many Western European countries have. It is often referred to as a value-added tax or a VAT Negative consumption is ruled out because it makes no 'economic sense. Zero consumption would be subop timal behavior with either of these...
Consider a representative consumer who has preferences over an aggregate consumption good c and leisure l....
Consider a representative consumer who has preferences over an aggregate consumption good c and leisure l. Her preferences are described by the utility function: U(c,l) = ln(c) + ln(l) The consumer has a time endowment of h hours which can be used to work at the market or enjoyed as leisure. The real wage rate is w per hour. The worker pays a proportional wage tax of rate t, so the worker’s after-tax wage is (1−t)w. The consumer also has...
3. Consider the two period setup for the household . Suppose the government initially raises revenue...
3. Consider the two period setup for the household . Suppose the government initially raises revenue only by taxing interest income. This means the individual's budget constraint is: C2 1(1 T)r where T is the tax rate. The government's revenue is zero in period 1 and TrĢ 0) where C is the individual's choice of Cı given the tax rate. Now suppose the government eliminates the taxation of interest income and instead institutes lump-sum taxes of amounts Tı and T2...
Consider a household facing the following problem
Consider a household facing the following problem: mgx U(c.h) = { ine+(1 – žin(1 – 1) subject to c=wh, where c denotes consumption, h hours worked and w is the wage. a. Describe the trade-off that the household faces and solve for hours worked, i.e. labour supply. b. Suppose that the government introduces a proportional tax, T, on labour income so that the budget constraint becomes c = (1 - T)wh. The tax revenue will be used to finance the...
2 Two Period Model of Consumption/Saving Decisions with Taxes (8 points) Assume a consumer who has...
2 Two Period Model of Consumption/Saving Decisions with Taxes (8 points) Assume a consumer who has current period income y200, future period income y-150, current taxes t = 40, and future taxes t' 50, and faces a market interest rate of r-5 percent or .05. The consumer would like to consume such that e'=e*(1+r) if possible. However, this consumer is faced with a credit market imperfection, in that no borrowing is allowed. That is s must be greater or equal...
2. Capital Tax: In our two period consumption-savings model, suppose that positive interest income in period...
2. Capital Tax: In our two period consumption-savings model, suppose that positive interest income in period 2 is taxed at rate t. Assume that Ao -0, the individual has positive endowment in both periods, and nominal prices for the good remain the same despite the ax (a) Write down the budget constraints in each period and obtain an algebraic expression for his life-time budget constraint. (b) Suppose that at the optimal choice, the representative individual is choosing not to save...
For each of the following situations, use the IS-LM-FX model to illustrate the effects of the...
For each of the following situations, use the IS-LM-FX model to illustrate the effects of the shock. For each case, state the effect of the shock (increase, decrease, no change, or ambiguous) on the following variables: Y, i, E, C, I, TB. Assume the government allows the exchange rate to float. a. Lump-sum taxes increase. b. Foreign income increases. c. Investors expect an appreciation of the home currency d. The money supply decreases.
Consider the two-period model from Chapter 9, and assume there is one representative consumer with utility function uc,d) = Iníc) + In(d), so the time discount factor is 3 = 1. There is also a government that levies lump-sum taxes in the current and future periods. The government has expenditures of G = 580 in the current period and G' = 630 in the future period. (a) Suppose the consumer has current and future income (w.y') = (3500, 6510), and...
4) Assume utility of the representative consumer is (CD) = (1/21/2. Also assume h = the time constraint, a = dividend income, and T = lump-sum tax. Derive the normal and the inverse labor supply functions.
3. Consider a representative consumer who has preferences over an aggregate consumption good e and leisure. Her preferences are described by the uility function: U(c,l) In(e) +In(l) The consumer has a time endowment of h hours which can be used to work at the market or enjoyed as leisure. The real wage rate is w per hour. The worker pays a proportional wage tax of rate t, so the worker's after-tax wage is (1 t). The consumer also has dividend...
4. A recurring idea in Congress is to move the United States further away from a system of income taxes and towards a system of consumption taxes. A nationwide consumption tax would essentially be a national sales tax, a system that many Western European countries have. It is often referred to as a value-added tax or a VAT Negative consumption is ruled out because it makes no 'economic sense. Zero consumption would be subop timal behavior with either of these...
3. Consider the two period setup for the household . Suppose the government initially raises revenue only by taxing interest income. This means the individual's budget constraint is: C2 1(1 T)r where T is the tax rate. The government's revenue is zero in period 1 and TrĢ 0) where C is the individual's choice of Cı given the tax rate. Now suppose the government eliminates the taxation of interest income and instead institutes lump-sum taxes of amounts Tı and T2...
2 Two Period Model of Consumption/Saving Decisions with Taxes (8 points) Assume a consumer who has current period income y200, future period income y-150, current taxes t = 40, and future taxes t' 50, and faces a market interest rate of r-5 percent or .05. The consumer would like to consume such that e'=e*(1+r) if possible. However, this consumer is faced with a credit market imperfection, in that no borrowing is allowed. That is s must be greater or equal...
2. Capital Tax: In our two period consumption-savings model, suppose that positive interest income in period 2 is taxed at rate t. Assume that Ao -0, the individual has positive endowment in both periods, and nominal prices for the good remain the same despite the ax (a) Write down the budget constraints in each period and obtain an algebraic expression for his life-time budget constraint. (b) Suppose that at the optimal choice, the representative individual is choosing not to save...
For each of the following situations, use the IS-LM-FX model to illustrate the effects of the shock. For each case, state the effect of the shock (increase, decrease, no change, or ambiguous) on the following variables: Y, i, E, C, I, TB. Assume the government allows the exchange rate to float. a. Lump-sum taxes increase. b. Foreign income increases. c. Investors expect an appreciation of the home currency d. The money supply decreases.
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