Consider the following effects of an increase in taxes for a consumer: The consumer’s taxes increase by ∆t > 0 from t...
Consider the following effects of an increase in taxes for a consumer:
The consumer’s taxes increase by ∆t > 0 from t1 to t2 in the current period. Using a diagram, determine how this affects current consumption (c), future consumption (c′), and current saving (s)? (8 points)
The consumer’s taxes increase permanently, increasing by ∆t in both the current period and future period. Using a diagram, determine how this affects current consumption (c), future consumption (c′), and current saving (s). Explain the differences between your results here and in part (a). (10 points)
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Consider the following effects of an increase in taxes for a consumer: The consumer’s taxes increase by ∆t > 0 from t...
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...
A consumer receives income y in the current period, income yœ in the future period, and pays taxes of t and t œ in the c...
A consumer receives income y in the current period, income yœ in the future period, and pays taxes of t and t œ in the current and future periods, respectively. The consumer can borrow and lend at the real interest rate r. This consumer faces a constraint on how much he or she can borrow, much like the credit limit typically placed on a credit card account. That is, the consumer cannot borrow more than x, where x < we...
A consumer receives income y in the current period, income yœ in the future period, and...
A consumer receives income y in the current period, income yœ in the future period, and pays taxes of t and t œ in the current and future periods, respectively. The consumer can borrow and lend at the real interest rate r. This consumer faces a constraint on how much he or she can borrow, much like the credit limit typically placed on a credit card account. That is, the consumer cannot borrow more than x, where x < we...
Question 1 (3 Points): Assume a consumer has current-period income y = 120, future-period income y'...
Question 1 (3 Points): Assume a consumer has current-period income y = 120, future-period income y' = 140, current and future taxes t = 20 and t' = 10, respectively, and faces a market real interest rate of r = 0.08, or 8% per period. The consumer has the following preferences over current and future consumption: U(c, c') = min(4c, 3c'). a) (1 points) Determine the consumer's lifetime wealth. b) (2 points) Determine what the consumer's optimal current-period and future-period...
A consumer receives income y in the current period, income yœ in the future period, and...
A consumer receives income y in the current period, income yœ in the future period, and pays taxes of t and t œ in the current and future periods, respectively. The consumer can borrow and lend at the real interest rate r. This consumer faces a constraint on how much he or she can borrow, much like the credit limit typically placed on a credit card account. That is, the consumer cannot borrow more than x, where x < we...
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...
Starting with the dynamic consumption model seen in class, consider the case where the consumer is...
Starting with the dynamic consumption model seen in class, consider the case where the consumer is not facing lump-sum taxes, but proportional taxes. The tax is a linear tax on consumption. In first period, the consumer pays a tax t:c, in the second period T'.d. Note that t and t' need not be identical. The government wants to collect a total amount of revenue, which has a present value of R=G+ Now the government reduces t and increases t' in...
3 Consumption Taxes and Ricardian Equiv- alence (8 points) Suppose a consumer has income y in...
3 Consumption Taxes and Ricardian Equiv- alence (8 points) Suppose a consumer has income y in period 1, y' in period 2, and faces a proportional tax on consumption. That is if consumption is c in period 1 'and c' in period 2, the consumer pays a tax sc on period 1 consumption and s'c' ou period 2 consumption. Thuss and s' represent the rate of sales tax in each period. The government wishes to collect total tax revenue in...
Assume the representative consumer lives in two periods and his preferences can be described by U(c,...
Assume the representative consumer lives in two periods and his preferences can be described by U(c, c' ) = c ^(1/2) + β(c') ^(1/2) , where c is the current consumption, c' is next period consumption, and β = 0.95. Let’s assume that the consumer can borrow or lend at the interest rate r = 10%. The consumer receives an income y = 100 in the current period and y' = 110 in the next period. The government wants to...
1. Consider the following two period consumption savings problem. A consumer cares about consumption (c and...
1. Consider the following two period consumption savings problem. A consumer cares about consumption (c and future consumption c according to Assume that U(c) is given by for some constant y. In the present the consumer chooses how much to consume and how much to save out of her income y>0 This decision is made in the knowledge that in the future she will be retired, have no income, and thus future consumption will be entirely out of savings: c)a,...
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...
Question 1 (3 Points): Assume a consumer has current-period income y = 120, future-period income y' = 140, current and future taxes t = 20 and t' = 10, respectively, and faces a market real interest rate of r = 0.08, or 8% per period. The consumer has the following preferences over current and future consumption: U(c, c') = min(4c, 3c'). a) (1 points) Determine the consumer's lifetime wealth. b) (2 points) Determine what the consumer's optimal current-period and future-period...
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...
Starting with the dynamic consumption model seen in class, consider the case where the consumer is not facing lump-sum taxes, but proportional taxes. The tax is a linear tax on consumption. In first period, the consumer pays a tax t:c, in the second period T'.d. Note that t and t' need not be identical. The government wants to collect a total amount of revenue, which has a present value of R=G+ Now the government reduces t and increases t' in...
3 Consumption Taxes and Ricardian Equiv- alence (8 points) Suppose a consumer has income y in period 1, y' in period 2, and faces a proportional tax on consumption. That is if consumption is c in period 1 'and c' in period 2, the consumer pays a tax sc on period 1 consumption and s'c' ou period 2 consumption. Thuss and s' represent the rate of sales tax in each period. The government wishes to collect total tax revenue in...
1. Consider the following two period consumption savings problem. A consumer cares about consumption (c and future consumption c according to Assume that U(c) is given by for some constant y. In the present the consumer chooses how much to consume and how much to save out of her income y>0 This decision is made in the knowledge that in the future she will be retired, have no income, and thus future consumption will be entirely out of savings: c)a,...
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