1. Suppose you are given the utility function: U = Vc + 1.10 and the budget...

 

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1. Suppose you are given the utility function: U = Vc + 1.10 and the budget constraint: c + == y+ 1+r 1+r where y = 5, y' = 10, and the interest rate r = 0.10. y' c+ 1+r y+ 1+r -t- 1+r If current and future government expenditure is: g=1, g' 3.3, and if current taxation t = 2: Suppose that current taxation decreases decrease from t= 2 to t =1.5. h) What is now the value of second period taxation, t'? i) What is the optimal value of current consumption c*? j) What is the optimal value of future consumption, c ? 1. Suppose you are given the utility function: U = Vc + 1.10 and the budget constraint: c + == y+ 1+r 1+r where y = 5, y' = 10, and the interest rate r = 0.10. y' c+ 1+r y+ 1+r -t- 1+r If current and future government expenditure is: g=1, g' 3.3, and if current taxation t = 2: Suppose that current taxation decreases decrease from t= 2 to t =1.5. h) What is now the value of second period taxation, t'? i) What is the optimal value of current consumption c*? j) What is the optimal value of future consumption, c ?