1. Consider a two-period model in which you work and save in the initial period (period 0) and live off savings and the interest from savings in retirement (period 1). Suppose that income in period 0 is $250,000, income in period 1 is $0, and the interest rate is 50%. a. Draw the budget line. b. Draw an indifference curve consistent with a person whose preferences causes them to equalize their consumption in period 0 and period 1. c. Savings are $ d. Draw the after-tax budget line if a personal income tax is introduced with a marginal tax rate of t= 40%. e. Suppose that preferences are such that after tax consumption is equalized in period 0 and period 1. On the diagram show after-tax savings. С1 (S x 1,000) 450 400 350 300 250 200 150 100 50 25 50 75 100 125 150 175 200 225 250 275 300 325 350 Cо (S x 1,000)

1. Consider a two-period model in which you work and save in the initial period (period 0) and live off savings and the interest from savings in retirement (period 1). Suppose that income in period 0 is $250,000, income in period 1 is $0, and the interest rate is 50%. a. Draw the budget line. b. Draw an indifference curve consistent with a person whose preferences causes them to equalize their consumption in period 0 and period 1. c. Savings are $ d. Draw the after-tax budget line if a personal income tax is introduced with a marginal tax rate of t= 40%. e. Suppose that preferences are such that after tax consumption is equalized in period 0 and period 1. On the diagram show after-tax savings. С1 (S x 1,000) 450 400 350 300 250 200 150 100 50 25 50 75 100 125 150 175 200 225 250 275 300 325 350 Cо (S x 1,000)

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.8P

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