Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Microeconomics Expert

Suppose Frank will earn $1 M during his working life and must decide how to spread that between consumption during his working life (Cp) and consumption during retirement (Cf). Assume that the real interest rate between the two periods is 100% and that both Cp and Cf are normal goods.
(a) prepare out the equation for Frank's budget line and illustrate it in a diagram with Cp on the horizontal axis and Cf on the vertical axis. What is the relative price of Cp? Identify it on your diagram.
(b) Suppose Frank chooses to consume $0.5 M during his working life. How much does he save? What is Cf? Illustrate this choice with an indifference curve and identify the level of saving.
(c) Suppose that the government decides to tax away all interest income, so that the real after-tax rate of interest between the two periods falls to 0%. Illustrate the new budget line in your diagram. Suppose Frank still chooses to consume $0.5 M during his working life. Illustrate this choice with an indifference curve. What does this choice tell you about the income and substitution effects of the change in the interest rate with respect to Cp?
(d) Show that Frank would prefer that the government not tax interest income but rather tax his current earnings by $0.25 M.
(e) Go back to the original situation of parts (a) and (b). Now suppose the government institutes a mandatory public pension plan that has Frank paying a "contribution" of_ $0.25 M today, but with a promise of receiving a "benefit" of $0.5 M in the future. Is he made better off? What happens to his amount of private saving.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M945719

Have any Question? 


Related Questions in Microeconomics

Assignmenta computerworld investigation reported that

Assignment A Computerworld investigation reported that delays in overhauling the federal tax system have cost the U.S. government approximately $50 billion a year in uncollected taxes. Although the IRS has spent hundreds ...

Assignmentthere is the widespread notion that economists

Assignment There is the widespread notion that economists rarely agree with each other. This seems perplexing when we note also that economics is often called the "Queen of the Social Sciences" (meaning that it is the mo ...

The economy is full employment now the government wants to

The economy is full employment. Now the government wants to change the composition of demand toward investment and away from consumption without, however, allowing aggregate demand to beyond full employment. What is requ ...

Short answer amp essay questionsyou must complete two short

Short Answer & Essay Questions You must complete two Short answer questions and one Essay question All answers must be in the form of a paragraph (minimum of 5 sentences per paragraph). Please select from below: Short An ...

Assignmentlearning objectives covered1explain 3 ways the

Assignment Learning Objectives Covered: 1. Explain 3 ways the statement of goals, application of rewards, and institution of discipline affect and motivate ethical behavior in individuals 2. Demonstrate how roles and aut ...

Assignmentscenario summarya kansas city based supplier of

Assignment Scenario Summary A Kansas City based supplier of health care information technology (HCIT) solutions has recently hired you as a Human Resource Manager. You are in charge of hiring new medical consultants for ...

Short-run economic fluctuationsplease have by 800 pm west

Short-Run Economic Fluctuations Please have by 8:00 pm west coast time cailfornia time 12/13/2016. Plagrism free, orignal work, and refs. APA format double space. please ask questions right away please dont wait to the l ...

Here is a link to the pdf version of dan ariellys

Here is a link to the pdf version of Dan Arielly's Predictably Irrational. http://radio.shabanali.com/predictable.pdf The Table of Contents starts on page 11. Scan through it and choose a chapter that looks interesting. ...

Milestone projectmilestone one propose organization for

Milestone Project Milestone One: Propose Organization for Analysis In Module Three, you will select the organization you would like to analyze in part two of the final project using the U.S. Securities and Exchange Commi ...

Assignmentthe agile approach towards system analysis and

Assignment The agile approach towards system analysis and development emphasizes iterative and incremental development, in which requirements and solutions evolve through collaboration. Prepare a 1000 word essay on the r ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro