3rian 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, ansuming a 6.5% interest rate. Add an indifference curve that assumes he optimallychooses to save $40,000 in the first period. Be sure to CLEARLY graph your answer, with labeln on the axes and any otherimportant points. Also show work for any calculations done.b. Show the offect of a 50% tax on interest income, assuming the substitution and income effects cancel each other out. Again, besure to clearly graph your answer and show work for any calculations done.

The income in the first period is $82000.The income in the second period is $19170. The consumer…

Brian 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% interest rate. Add an indifference curve that assumes he optimally chooses to save $40,000 in the first period. Be sure to CLEARLY graph your answer, with labels on the axes and any other important points. Also show work for any calculations done. b. Show the effect of a 50% tax on interest income, assuming the substitution and income effects cancel each other out. Again, be sure to clearly graph your answer and show work for any calculations done.

Brian 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% interest rate. Add an indifference curve that assumes he optimally chooses to save $40,000 in the first period. Be sure to CLEARLY graph your answer, with labels on the axes and any other important points. Also show work for any calculations done. b. Show the effect of a 50% tax on interest income, assuming the substitution and income effects cancel each other out. Again, be sure to clearly graph your answer and show work for any calculations done.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter4: Utility Maximization And Choice

Section: Chapter Questions

Problem 4.3P

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