Sep 28, 2017 term paper 2


This paper concentrates on the primary theme of CONSIDER AN ECONOMY WHERE INDIVIDUALS LIVE FOR TWO PERIODS ONLY. THEY HAVE THE UTILITY FUNCTION… in which you have to explain and evaluate its intricate aspects in detail. In addition to this, this paper has been reviewed and purchased by most of the students hence; it has been rated 4.8 points on the scale of 5 points. Besides, the price of this paper starts from £ 40. For more details and full access to the paper, please refer to the site.

Consider an economy where individuals live for two periods only. They have the utility function over consumption in period 1 (C1) and period 2 (C2) given by U = 2 log(C1) + 2 log(C2). The labor income of each individual in period 1 is fixed at $10, and there is no labor income in period 2. They can save as much of their income in period 1 as they like in bank accounts, earning interest rates of 200 percent per period (recall, a period is the entire active life). The income tax rate is 50 percent, which is used to pay back the public debt inherited from the past generation.

a. Derive the optimal lifetime consumption profile of this consumer. What would be the consumption profile without income tax?

b. Suppose that a ‘‘retirement saving program’’ is introduced allowing each consumer to save up to 20 percent in the first period in a tax-free account. Compare the lifetime budget constraints with and without the retirement savings program.

c. Derive the optimal lifetime consumption profile with the retirement savings program. Explain the impact of this program on private savings.

d. Now suppose that the retirement savings program in part b is replaced by a new savings program taxing investment income on the first 50 percent of savings and exempting any savings in excess of 50 percent from taxation. Draw the budget set associated with this program, and find the optimal lifetime consumption profile. Explain the difference with the program in part b.

e. If the threshold for tax-exempt savings in part b is increased from 50 to 51 percent, how would this affect private savings? How does this affect total savings in society?

0% Plagiarism Guaranteed & Custom Written, Tailored to your instructions

International House, 12 Constance Street, London, United Kingdom,
E16 2DQ

UK Registered Company # 11483120

100% Pass Guarantee

Order Now


We've produced some samples of what you can expect from our Academic Writing Service - these are created by our writers to show you the kind of high-quality work you'll receive. Take a look for yourself!

View Our Samples

corona virus stop
FLAT 25% OFF ON EVERY ORDER.Use "FLAT25" as your promo code during checkout