Consider the optimization problem discussed in class where there are two-period income and consumption with a...

 

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Consider the optimization problem discussed in class where there are two-period income and consumption with a borrowing interest rate. By using the diagram approach, or with numerical examples, discuss the effect of following changes added to the simple framework. There is a consumtion tax (t %) on consumption b. There is a capital gains tax (g %) on investment Interest rate is negative a. C. INDIVIDUAL'S CONSTRAINED UTILITY-MAXIMIZING CHOICE OF CONSUMPTION STANDARDS 2₂=₂+₁ 1+r Repayment of borrowing Time 21 plus interest Y2 31 0 Borrowing 3/2 Time I Consider the optimization problem discussed in class where there are two-period income and consumption with a borrowing interest rate. By using the diagram approach, or with numerical examples, discuss the effect of following changes added to the simple framework. There is a consumtion tax (t %) on consumption b. There is a capital gains tax (g %) on investment Interest rate is negative a. C. INDIVIDUAL'S CONSTRAINED UTILITY-MAXIMIZING CHOICE OF CONSUMPTION STANDARDS 2₂=₂+₁ 1+r Repayment of borrowing Time 21 plus interest Y2 31 0 Borrowing 3/2 Time I

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a If there is a consumption tax then the optimal consumption will be lower than in the case witho... View the full answer