Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Chapter 16, Problem 2RQ
To determine
Intertemporal budget constraint.
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What is the economic interpretation of the intertemporal budget constraint?
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Chapter 16 Solutions
Macroeconomics (Fourth Edition)
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- 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 incomearrow_forwardUsing this Intertemporal Budget Constraint how can you solve for C2 (consumption in period 2)arrow_forwarda. As the interest rate rises, does the intertemporal budget constraint become steeper or flatter? b. Would the assumption that goods are perfect substitutes be valid in a study of intertemporal food purchases?arrow_forward
- Of means-tested programs and IRA’s, which lower the rate of return on saving? a. Both means-tested programs and IRA's. b. Means-tested programs, but not IRA's. c. IRA's but not means-tested programs. d. Neither means-tested program, or IRA's.arrow_forwardIs Medium Term Expenditure Framework (MTEF) a Budgeting Approach? Discussarrow_forwardThe 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…arrow_forward
- arrow_forward Question Asked Aug 18, 2020 25 views Consider the following model of an economy operating with fixed wages, prices and interest rates and hasexcess capacity. Adsume all figures are I Zambian kwacha. C=100+0.8yd, T=100+25Y, G=980 and I= 500 Where c is consumption, yd is disposable income, T is taxes net of transformers, G is government spending on goods and services and I is investments. Is the government running a surplus or deficit Show the impact of a reduction in government spending by 80 on the equilibrium level of national income Illustrate your new equilibrium in the same Keynesian cross diagramarrow_forwardDescribe 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.arrow_forwardexplain intertemporal coicearrow_forward
- When does the optimal investment schedule shift?arrow_forwardIn the Savings-Investment model, what is the effect of an increase in government spending on investment? Why?arrow_forwardAccording to the Chapter 10 lecture, Economic growth depends on fiscal sustainability where projected equalsarrow_forward
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