Jane received a large windfall of $50,000 in cash. As a result, she decided to take two years off from her job to travel the world. She has to think about her budget for the year. She must be able to survive off the $50,000 for the two years. If she saves some money in year 1, she receives a return of r% on the savings. Jane must pay an ad valorem capital tax t1 on her income. She must also pay an ad valorem consumption tax t2 on whatever she consumes. Also, since she is not working, she will get a tax credit of T dollars from the government. Write and explain Jane's budget constraint for the two years, using graphs to explain how each step alters her budget constraint.

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Solution Jane has received 50000 from the windfall Jane is ... View the full answer