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Consider the two-period life-cycle model and suppose that individuals receive labor income the first and second periods, Y1 and Y2. Denote by r the interest rate and assume that r = 0.1 (10%). There are two individuals in this economy, agent A and agent B. They both have the same labor income, Yi = 100, Y2 = 50. Thus, there is total equality in the labor income distribution. The utility function of agenti, i= A, B, is U;(C1, c2) = In(c:)+ B In(c2), where ci consumption in the first period, and c2 consumption in the second period (price of c, and c2 equal to one). Agents differ in the value of B and Ba = 0.7 and ßs = 0.6. A) Find the value of th wealth, Wi, of each individual in the second period (i.e. their savings before the return they g on it ). Is the distribution of wealth more or less equal than the distribution of income? B) Continue with the same economy as in the previous question. If the government establishes a tax rate of 25% on the capital income ( and the government does not return that revenue to the agents), what happens with the distribution of wealth? Select one: O a. The distribution of wealth becomes more unequal than before because now WA=13.98103 and Wg=8.2202 Agent B only has 58.7955% of the wealth of A, i.e., 8.22021/13.98103 =0.587955 O b. The distribution of wealth becomes more unequal than before because now WA=14.88150 and Wg=9.0102 Agent B only has 60.5465% of the wealth of A, i.e., 9.01023/14.88150 =0.605465 O c. The distribution of wealth does not change because the agents have preferences such that savings do not depend on the tax rate on capital income. O d. The distribution of wealth becomes more unequal than before because now WA=13.8167 and Wg=8.43023 Agent B only has 61.0149% of the wealth of A, i.e., 8.43023/13.8167 0.610149

Consider the two-period life-cycle model and suppose that individuals receive labor income the first and second periods, Y1 and Y2. Denote by r the interest rate and assume that r = 0.1 (10%). There are two individuals in this economy, agent A and agent B. They both have the same labor income, Yi = 100, Y2 = 50. Thus, there is total equality in the labor income distribution. The utility function of agenti, i= A, B, is U;(C1, c2) = In(c:)+ B In(c2), where ci consumption in the first period, and c2 consumption in the second period (price of c, and c2 equal to one). Agents differ in the value of B and Ba = 0.7 and ßs = 0.6. A) Find the value of th wealth, Wi, of each individual in the second period (i.e. their savings before the return they g on it ). Is the distribution of wealth more or less equal than the distribution of income? B) Continue with the same economy as in the previous question. If the government establishes a tax rate of 25% on the capital income ( and the government does not return that revenue to the agents), what happens with the distribution of wealth? Select one: O a. The distribution of wealth becomes more unequal than before because now WA=13.98103 and Wg=8.2202 Agent B only has 58.7955% of the wealth of A, i.e., 8.22021/13.98103 =0.587955 O b. The distribution of wealth becomes more unequal than before because now WA=14.88150 and Wg=9.0102 Agent B only has 60.5465% of the wealth of A, i.e., 9.01023/14.88150 =0.605465 O c. The distribution of wealth does not change because the agents have preferences such that savings do not depend on the tax rate on capital income. O d. The distribution of wealth becomes more unequal than before because now WA=13.8167 and Wg=8.43023 Agent B only has 61.0149% of the wealth of A, i.e., 8.43023/13.8167 0.610149

Algebra & Trigonometry with Analytic Geometry
Algebra & Trigonometry with Analytic Geometry
13th Edition
ISBN:9781133382119
Author:Swokowski
Publisher:Swokowski
Chapter5: Inverse, Exponential, And Logarithmic Functions
Section5.6: Exponential And Logarithmic Equations
Problem 64E
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hello! can you solve question B. thanks Consider the two-period life-cycle model and suppose that individuals receive labor income in the first and second periods, Y1 and Y2. Denote by r the interest rate and assume that r = 0.1 (10%). There are two individuals in this economy, agent A and agent B. They both have the same labor income, Y = 100, Y2 = 50. Thus, there is total equality in the labor income distribution. The utility function of agenti, = A, B, is U;(c1, c2) = In(c;)+ ß In(c2), where cz is consumption in the first period, and c2 consumption in the second period (price of c, and c2 equal to one). Agents differ in the value of ß and Ba = 0.7 and fe = 0.6. A) Find the value of the wealth, Wi, of each individual in the second period (i.e. their savings before the return they get on it). Is the distribution of wealth more or less equal than the distribution of income? B) Continue with the same economy as in the previous question. If the government establishes a tax rate of 25% on the capital income ( and the government does not return that revenue to the agents), what happens with the distribution of wealth? Select one: O a. The distribution of wealth becomes more unequal than before because now WA=13.98103 and Wg=8.22021. Agent B only has 58.7955% of the wealth of A, i.e., 8.22021/13.98103 =0.587955 O b. The distribution of wealth becomes more unequal than before because now WA=14.88150 and Wg=9.01023. Agent B only has 60.5465% of the wealth of A, i.e., 9.01023/14.88150 0.605465 c. The distribution of wealth does not change because the agents have preferences such that savings do not depend on the tax rate on capital income. O d. The distribution of wealth becomes more unequal than before because now WA=13.8167 and WB=8.43023. Agent B only has 61.0149% of the wealth of A, i.e., 8.43023/13.8167 0.610149
Transcribed Image Text:hello! can you solve question B. thanks Consider the two-period life-cycle model and suppose that individuals receive labor income in the first and second periods, Y1 and Y2. Denote by r the interest rate and assume that r = 0.1 (10%). There are two individuals in this economy, agent A and agent B. They both have the same labor income, Y = 100, Y2 = 50. Thus, there is total equality in the labor income distribution. The utility function of agenti, = A, B, is U;(c1, c2) = In(c;)+ ß In(c2), where cz is consumption in the first period, and c2 consumption in the second period (price of c, and c2 equal to one). Agents differ in the value of ß and Ba = 0.7 and fe = 0.6. A) Find the value of the wealth, Wi, of each individual in the second period (i.e. their savings before the return they get on it). Is the distribution of wealth more or less equal than the distribution of income? B) Continue with the same economy as in the previous question. If the government establishes a tax rate of 25% on the capital income ( and the government does not return that revenue to the agents), what happens with the distribution of wealth? Select one: O a. The distribution of wealth becomes more unequal than before because now WA=13.98103 and Wg=8.22021. Agent B only has 58.7955% of the wealth of A, i.e., 8.22021/13.98103 =0.587955 O b. The distribution of wealth becomes more unequal than before because now WA=14.88150 and Wg=9.01023. Agent B only has 60.5465% of the wealth of A, i.e., 9.01023/14.88150 0.605465 c. The distribution of wealth does not change because the agents have preferences such that savings do not depend on the tax rate on capital income. O d. The distribution of wealth becomes more unequal than before because now WA=13.8167 and WB=8.43023. Agent B only has 61.0149% of the wealth of A, i.e., 8.43023/13.8167 0.610149
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