A worker lives for two periods and has income Y1=£100 in the first period and Y2=£150 in the second period. His discount factor is 0.9 (beta=0.9). The interest rate is R=30%. In the first period the worker chooses how much to consume (C1) and how much to save (S). In the second period he chooses how much to consume (C2). Savings earn interest R. The worker's utility is U(C1, C2)=In(C1)+ beta*In(C2) Q: Assume that the worker is not able to borrow in the first period because of credit constraints. The government gives a £20 tax rebate in the first period. Calculate the change in first-period consumption due to the tax rebate.

A worker lives for two periods and has income Y1=£100 in the first period and Y2=£150 in the second period. His discount factor is 0.9 (beta=0.9). The interest rate is R=30%. In the first period the worker chooses how much to consume (C1) and how much to save (S). In the second period he chooses how much to consume (C2). Savings earn interest R. The worker's utility is U(C1, C2)=In(C1)+ beta*In(C2) Q: Assume that the worker is not able to borrow in the first period because of credit constraints. The government gives a £20 tax rebate in the first period. Calculate the change in first-period consumption due to the tax rebate.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.3P

See similar textbooks

Similar questions

a) Suppose you put $350 into a bank account today. Interest is paid annually and the annual interest rate is 6 percent. What is the future value of the $350 after 4 years? b) Suppose you are deciding whether to buy a particular bond from your local municipality. If you buy the bond and hold it for 4 years, then at that time you will receive a payment of $10,000. Assume the interest rateis6percent. Underwhatcircumstanceswillyoubuythebond?Meaninguptowhatpriceareyou willing to pay.
Labour Economics Question The direct cost of a training module to be taken by an employee is $5000 and the opportunity cost involved is $7000. The expected incremental earnings to be received by the employee in the first 5 years are $3000, $3500, $4000, $4500 and $5000, respectively. Assuming the interest rate is 10%. Based on the concept of net present value, should the employee pursue this training module? Show all steps of calculations. Why opportunity cost not combine to same direct cost at calculated NPV?
Suppore you $15,000 as feu cach year. The college lasts for 2 years. After 2 years, you get a jol that giver you S60,000. Il you do not ga to college, then you carn $30,000 for 3 years, $45,000 for neet 3 S60,000 (on evey yas after that. Amume interest rate is 10 percent. Will you go to colge? have two option: go to college or start working. l you go to college, you have to pay years and
Julie lives for two periods. She works in the first, saves some of her income, and retires inthe second and lives off her savings. For every coconut she saves today, she earns an interestrate of r = 2%. Julie’s generation comprises of 1,000 people and each generation grows byn% relative to the previous one.a. In the first period Julie saves 100 coconuts for retirement. How many coconuts will shehave when she retires?b. Now suppose that the government implements a pay-as-you-go social security system,forcing every person in Julie’s generation to pay 100 coconuts to a social security fund thatwill distribute the money to the currently old. In exchange, when Julie retires each youngperson will pay 100 coconuts to the social security fund, and the revenue will be dividedequally among the future retirees. How much will be the revenue of the social securitysystem, and how many coconuts will each retiree will receive?c. What will have to be the range of values for n so that the government’s…
Suppose a person lives for 4 periods. His salary during each period of his life is $30, $60, $90 and $0. He was born without any financial wealth. 1. If the interest rate is 8% per period, what is the present value of the income of this agent? 2. If the individual wishes to have a constant consumption during his life, what will it be? Deduct his level of savings during each of the 4 periods of his life. 3. Suppose our individual cannot borrow (but can save). Determine the consumption and savings profile of the individual. 4. Suppose our individual receives an inheritance at birth of $10. How your answer in c) be affected?
This person earns $1000 of income today and $2000 income next year. Point C represents his consumption if he doesn't borrow or lend. If the interest rate is 10%, his Consumption Next Year at Point A is? Consumption Next Year B Consumption Today
Suppose Latasha is a sports fan and buys only baseball caps. Latasha deposits $3,000 in a bank account that pays an annual nominal interest rate of 5%. Assume this interest rate is fixed-that is, it won't change over time. At the time of her deposit, a baseball cap is priced at $10.00. Initially, the purchasing power of Latasha's $3,000 deposit is baseball caps. For each of the annual inflation rates given in the following table, first determine the new price of a baseball cap, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Latasha's deposit after one year in the first row of the table for each inflation rate. Finally, enter the value for the real interest rate at each of the given inflation rates. Hint: Round your answers in the first row down to the nearest baseball cap. For example, if you find that the deposit will cover 20.7 baseball caps, you would round the purchasing power down to 20 baseball caps under the assumption that Latasha…
Write the net present or future worth expression?
Mathematically derive slope of IS curve. Prove that if investment does not depend oni interestrate, the slope of IS curve is infinity.
Answer the question no (c) = Future Value (F)= ? Answer the question no (D)= Present value (G) = ?
(a) You hold a two period bond that pays a coupon C at the end of each period. The interest rate is expected to be i for each of these periods. What is the price of the bond today? (b) The interest rate changes to i' in the second period. Evaluate the rates of return (using algebra) when you sell the bond after one period in the case of the change being 1. anticipated 2. unanticipated.
You're currently 20 years old, anticipate a natural life of 80 years and a work life of 40 years (retire at the age of 60). You estimate your income from work will be $4,500,000. a. What is your level of permanent consumption? b. What is the level of savings you will have when you retire? c. If at the age of 45 you receive a bonus of $100,000, how will this impact your permanent consumption? Over what time period.