Consider a consumer that lives only two periods and leaves no money behind. This consumer likes...

 

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Consider a consumer that lives only two periods and leaves no money behind. This consumer likes consumption (composite good) in both periods. The utility function is: U = Co * C1, MU0 C1, MU = Co In period 0, the consumer's income is Mo = 20,000 and in period 1, the consumer's income is M = 5,000. The interest rate at which the consumer can borrow and lend money is 10%. a) What is the consumer's optimal consumption bundle borrowing or saving decision without a public pension? b) Now suppose that the government offers a public pension (financed by a pay-as-you-go system) that charges $3,000 in payroll taxes in period 0 and promises a pension of $3,300 in period 1. What is the impact on the consumer's borrowing or saving decision? c) Now suppose that the government asked for a payroll tax of $8,000 in period 0 and promised a pension of $8,800 in period 1. What is the impact on this consumer's borrowing and saving decision now? Consider a consumer that lives only two periods and leaves no money behind. This consumer likes consumption (composite good) in both periods. The utility function is: U = Co * C1, MU0 C1, MU = Co In period 0, the consumer's income is Mo = 20,000 and in period 1, the consumer's income is M = 5,000. The interest rate at which the consumer can borrow and lend money is 10%. a) What is the consumer's optimal consumption bundle borrowing or saving decision without a public pension? b) Now suppose that the government offers a public pension (financed by a pay-as-you-go system) that charges $3,000 in payroll taxes in period 0 and promises a pension of $3,300 in period 1. What is the impact on the consumer's borrowing or saving decision? c) Now suppose that the government asked for a payroll tax of $8,000 in period 0 and promised a pension of $8,800 in period 1. What is the impact on this consumer's borrowing and saving decision now?