Jesse earns income equal to $82,000 in the first period,but his income will drop to $19,170 in the second period.
(a)Sketch his intertemporal budget constraint,assuming a 6.5% rate of interest.Add an indifference curve that assumes he optimally chooses to save $40,000 in the first period.
(b)Show the effect of a 50% tax on interest income,assuming the substitution and income effects cancel each other out.

Question

Quizplus · Accepted Answer

The Answer of Jesse earns income equal to $82,000 in the first period,but his income will drop to $19,170 in the second period.
(a)Sketch his intertemporal budget constraint,assuming a 6.5% rate of interest.Add an indifference curve that assumes he optimally chooses to save $40,000 in the first period.
(b)Show the effect of a 50% tax on interest income,assuming the substitution and income effects cancel each other out.

Jesse Earns Income Equal to $82,000 in the First Period,but