M7 a) Carefully explain the major differences betweenthe Keynes' and Fisher's models of consumption. b)A family of four has an income of $15,000 todayand will earn $24,000 tomorrow. i. If the familyconsumes $11,500 in the first period and $15,000in the second period, what is the interest rate? ii. Ifthe family consumes $15,000 in the first period and$13,500 in the second period, what is the interestrate? iii. Explain the income and substitution effectsand discuss which effect dominated after theinterest rate change from part (a) to part (b.). C)Keynes viewed consumption as an activity basedon psychology. Briefly discuss how the work ofDavid Laibson supports Keynes' view?

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Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter13: Investing In Mutual Funds, Etfs, And Real Estate

Section: Chapter Questions

Problem 9FPE

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Suppose the tax rate on the first $10,000 income is 0; 10 percent on the next $20,000; 20 percent on the next $20,000; 30 percent on the next $30,000; and 40 percent on any income over $80,000. Family A has income of $40,000 and Family B has income of $100,000. What is the marginal and average tax rate for each family? Question 10 options:Family A: marginal20 percent; average10 percent; Family B: marginal40 percent; average23 percent.Family A: marginal20 percent; average20 percent; Family B: marginal40 percent; average40 percent.Family A: marginal20 percent; average15 percent; Family B: marginal40 percent; average20 percent.Family A: marginal10 percent; average10 percent; Family B: marginal30 percent; average30 percent.Save
Linda can borrow or save money at an interest rate of 10%. Consider a simple two period model in which her income is $20,000 this year and $20,000 next year. Use this information to answer the following questions: (a) Suppose that interest income is taxed at a rate of 40%. Sketch Linda’s budget line. Given this budget line, Linda chooses to save $10,000 in the first period. How much tax does Linda pay? What is her consumption in each period? Indicate this point on your sketch of Linda’s budget line. (b) Suppose the government proposes removing the interest tax with a lump sum tax in period 2 that generates the same revenue as the interest tax. If this policy is implemented, Linda will pay the same total tax bill as in part (a), but interest income will no longer be not taxed. Sketch Linda’s old and new budget lines. Does Linda prefer the old tax or the new tax? Is it possible to determine whether Linda will save more or less with the lump sum. (Hint: With the new tax, can Linda still…
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Suppose you are in the 25% marginal tax bracket and earn $15,000. Then a tax credit of $1500 will reduce your tax bill by how much?
If Nancy can increase sales by 10%, by what dollar amount will her operating income increase?
Paul just graduated from college and landed his first "real" job, which pays $33,200 a year. In 5years, what will he need to earn to maintain the same purchasing power if inflation averages 4 percent The future value, FV, Paul will need to earn if inflation averages 4 percent is blank (Round to the nearest cent.)
An engineer in 1950 was earning $6,000 a yaer. In 2011, she earns $60,000 a year. However, on average, goods today cost 8.2 times whatthey did in 1950. a.) What is her real income in 2011 in terms of constant 1950 dollars? b.) Calculate her salary's annual inflation rate and the cost of goods annual inflation rate.
Laureen Mauer’s salary a yearago was $52,000. If inflation during theyear was 3.5 percent in Tampa whereshe lives, how much of a decline in herpurchasing power occurred? Also, whatwould be her purchasing power if deflationof 1 percent occurred?
If the price of attending Big Benefits University is $8,000 a year for tuition, fees, books, and and $25,000 in foregone earnings, what is the marginal cost of attending, if it takes you 5 years to graduate, and you assume a 3% annual inflation rate? If the average college graduate makes $38,000 more every year than the average high school graduate, what is the cumulative marginal benefit of a college education if the average college graduate works for 40 years, assuming a 3% inflation rate? c.In this scenario does it make sense to go to college, explain your answer.
Given the attached information, which of the answers below would be correct?: a. A would lend, consume 0 today and $105,000 next year b. G would borrow, consume $112,037 today and 0 next year c. A would lend, consume 0 today and $111,000 next year d. G would borrow, consume $105,714 today and 0 next year e. G would borrow, consume $111,111 today and 0 next year
Li is amazed that he will be able to accumulate over $600,000. However, he knows that inflation will increase his cost of living significantly in 30 years. He assumes 3% inflation and wants to find the income he needs at age 67 to have the same purchasing power as $40,000 today. (Hint: Look at inflation in Section 10.2 and use the compound interest table in Section 10.1.

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