The household-specific randomness is distributed identically and independently across households. Except for paying taxes and possibly receiving insurance payments from the government, households have no interactions with one another; there are no markets.
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Asset insurance Consider the following setup. There is a continuum of households who maximize
Where y > 0 is a constant level of income not derived from capital, α ∈ (0, 1), τ is a fixed lump sum tax, kt is the capital held at the beginning of t, g ≤ 1 is an “investment insurance” parameter set by the government, and xt is a stochastic household-specific gross
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- Indicate whether the statement is true or false, and justify your answer.The internal rate of return is defined as the interest rate that makes the net present value of an investment stream exactly equal to zero.Consider a one period model in which a representative agent maximises the utility function: u(c,l) = lnc + 5lnl subject to the budget constraints: c = (1-t)w(1-l) + v where c is consumption and l is the amount of leisure, they enjoy out of a total of one unit of time available, t is the tax on wage earnings which pays for v in government transfer payments. A. Derive the equation that determines how much revenue the government will receive for a given rate of tax t. What is this relationship called? B. Solve for the maximum amount of revenue the government can raise from this tax. Hint: the tax rate will be a fraction between 0 and 1. C. In this particular example, what are the contributions of the income and substitution effects?John and Peter are two representative consumers/investors who maximize the utility of consumption. John's utility of consumption is characterized as ln(x) + 2ln(y) while Peter puts more weight on the current consumption level and has a utility function of 2ln(x) + ln(y). John has a wealth of ($10, $20) thousand, while Peter has a wealth of ($20, $15) thousand now and next year, respectively. (a) What are the optimal consumption plans forJohn and Peter,respectively,if the interest rate is 5% per annum? (b) If John and Peter are the only investors/consumers, what is the equilibrium interest rate? (c) Further to part (b), how much do they borrow or lend to each other?
- suppose the person acquires a chronic disease and his health depreciation rate rises to 35% annually. What is the new optimal level of health this person should demand now having the chronic disease? assume the health production function is h equals 365-1 divided by H where h is the number of healthy days a person has in each year and H is the persons health capital. Assume this person earns $100 a day and the marginal cost of health investment is pi equals 25 and remains constant overtime. The annual interest rate is 5% and health capital depreciates at a rate of 15% per annumA consumer who starts (i.e. has an endowment) at point B, and has preferences shown by IC1, will want to borrow. Question 13Select one: True False Question text Assuming a mix of present and future consumption is preferred, ANY consumer who starts (i.e. has an endowment) at point A will gain utility from a rise in interest rates. Question 14Select one: True False Question text A consumer who starts at point B will want to borrow, but as little as possible in order to minimise the cost of interest. Question 15Select one: True False Question text If a consumer starts at point A, and then receives extra income in the present, this would appear as an outward shift of the budget constraint. Question 16Select one: True FalseConsider a one period model in which a representative agent maximises the utility function: u(c,l) = lnc + 5lnl subject to the budget constraints: c = (1-t)w(1-l) + v where c is consumption and l is the amount of leisure, they enjoy out of a total of one unit of time available, t is the tax on wage earnings which pays for v in government transfer payments. A. Solve for first order conditions of the representative agent. B. Write down the market clearing condition (resource constraint) for the aggregate economy. C. Solve for equilibrium consumption and labour choices.
- As a hypothetical case, suppose the typical individual has a utility function expressed as U = (C – 50)*(L – 10), where C is consumption and L is leisure time. The current wage, w,is $5 and she has a weekly return on assets of V0020= $100. She only has 60 hours per week to divide between work hours, h, and Leisure. A number of countries and communities are considering implementing a “Guaranteed Basic Income” as policy. A “Guaranteed Basic Income” is a government payment of a fixed a amount of money for each personSuppose the country of interest sets the weekly payment at $100. Using the Neo-classical labor supply with reference to specific numerical values discuss the consequences of the above “Guaranteed Basic Income”. Using the basic Supply and Demand for labor approach discuss the consequences of the “Guaranteed Basic Income” policy on the overall labor market. 3.Using a feedback approach, from the Neo-classical labor supply to market equilibrium and back to labor supply,…The manager of your company’s pension fund is compensated based entirely on fund performance; he earned over $1.2 million last year. As a result, the fund is contemplating a proposal to cap the compensation of fund managers at $100,000. Provide an argument against the proposalFind the Marginal efficiency of capital if the Prospective yield is $600 the supply price is $280 in the given question.
- True or False: Employee compensation in the form of health insurance is currently subject to personal taxation, making it less desirable for people to get health insurance provided by their employer and more desirable for them to purchase it from a private insurance company.Consider an individual who lives for two periods and has utility of lifetime consumption U = log(C1) + 1/1+δ log(C2), where C1 and C2 are the consumption levels in the first and second period respectively, and δ, 0 1 > 0 in the first period and no income in the second period, so Y2 = 0. He can transfer some income to the second period at a before-tax rate of return of r, so saving $S in the first period gives $[1 + r]S in the second period. The government levies a capital tax at rate τ on capital income received in the second period. The tax proceeds are paid as a lump-sum transfer to the following generation. The present generation does not care about the next one. a. What is the lifetime consumption profile of this individual? What is his lifetime indirect utility function expressed as a function of Y1 and b. Evaluate the change in initial income Y1 that is required to compensate the individual for the welfare loss due to the capital income tax τ. c. What is…According to Irving Fisher’s two period model, if the consumers face borrowing constraint, the first-period consumption cannot exceed first-period income True False