True or False: It is possible, in a basic hours towards leisure and income towards consumption model, that the Earned Income Tax Credit can encourage more hours towards leisure, less hours towards work and more money towards consumption
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True or False: It is possible, in a basic hours towards leisure and income towards consumption model, that the Earned Income Tax Credit can encourage more hours towards leisure, less hours towards work and more money towards consumption.
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- Suppose Bank of England is considering using the tool of cutting interest rates to boost household consumption. In this question you will be asked to use the intertemporal choice model to assess the impact of different policies on household consumption. Suppose a consumer's current income is £25,000 and their future income is £30,000, and they initially face a market interest rate of 15% on both saving and borrowing. (a) In a diagram with consumption this year (C1) on the horizontal axis and consumption next year (C2) on the vertical axis, illustrate this consumer's budget constraint (using the numerical values set above) and indicate their optimal choice by drawing a indifference curve convex to the origin, assuming that at the current interest rate it is optimal for them to save. (b) Calculate (using the numerical values set above) and interpret their marginal rate of time preference at their optimal choice. (c) Illustrate and explain how a fall in the market interest rate from 15%…Refer to the accompanying figures, with consumption schedules in figure (A) and saving schedules in figure (B), which correspond to each other across different levels of disposable income. If, in figure (A), consumption shifts from A2 to A3 because of a change in taxes, then in figure (B) line B2 will shift to B3. B1 will shift to B2. B2 will shift to B1. B3 will shift to B2.Discuss the lifecycle income hypothesis theory of consumption and explain its applicability in the Kenyan context.
- Describe how the endogeneity versus exogeneity of consumption expenditures (i.e., the household sector) affects the size of predicted output multipliers by an input-output model.Janet, a mother of two, decides to reduce her working hours to spend more time with her children. By itself, assuming everything else being the same, this development has necessarily resulted in a lower quality of life for Janet due to a fall in income (and resultant fall in economic activity as measured by GDP). Explain whether the given statement is true, false or uncertain. Start your answer by selecting one of the options – “True”, “False” or “Uncertain” and then provide arguments to justify your selection.True or false Disposable income is the income that remains to the household for the use of consumption after paying all the taxes.
- Consider the intertemporal budget constraint in the context of the two-period life-cycle model. When there is no tax on interest income, the slope of the intertemporal budget constraint is -1.2. When there is a percentage tax interest income, the slope of the intertemporal budget constraint becomes -1.15. What is the percentage tax rate on interest incomeAssuming the level of investments is $16 billion and independent of the level of total output,complete the following table and determine the equilibrium levels of output and employment in this private closed economy. What are the sizes of the MPC and MPS? Possible Levels of Employment, Million Real Domestic Output (GDP=DI), Billions Consumption, Billions Saving, Billions 40 $240 $244 $ 45 $260 $260 50 $280 $276 55 $300 $292 60 $320 $308 65 $340 $324 70 $360 $340 75 $380 $356 80 $400 $372If the maximum potential combination of consumer and capital goods produced by an economy has increased over time, which of the following is true? a. Marginal tax rates have increased due to contradictory fiscal policy. b. Keynesian policy initiatives have allowed for increased consumption of both consumer and capital goods. c. New physical capital has been introduced to firms throughout the economy. d. Resources are being utilized inefficiently at this combination of goods and services. e. Monetary policy authorities have effectively decreased bank reserves through open market operations.
- in the aggregate expenditure model for a closed economy assuming investment, government spending and taxes are exogenous, if the marginal prosperity to consume is 0.8, a simultaneous 50 unit increase in government spending and a 20 unit decrease in investment will change equilibrium income by?The following graph shows the market for loanable funds. For each of the given scenarios, adjust the appropriate curve on the graph to help you complete the questions that follow. Treat each scenario separately by resetting the graph to its original state before examining the effect of each individual scenario. (graph in image) Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the interest income earned on bonds or deposits is taxed at a rate of 20%. Now suppose there is an increase in the tax rate on interest income, from 20% to 25%. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to (a. fall, b. rise) and the level of investment spending to (a. increase, b. decrease). Scenario 2: An investment tax credit effectively lowers the tax bill of any firm that purchases…Jack and Jill both obey the two-period Fisher model of consumption. Jack earns $100 in the first period and $100 in the second period. Jill earns nothing in the first period and $210 in the second period. Both can borrow or lend at the interest rate r. a. You observe both Jack and Jill consuming $100 in the first period and $100 in the second period. What is the interest rate r?
