f03mt - GS/ECON 5300 Midterm Exam PUBLIC ECONOMICS I Do all...

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GS/ECON 5300 PUBLIC ECONOMICS I Midterm Exam October 22 2003 Do all 3 questions. All count equally. 1. What is the effect on a person’s saving of a 25 percent tax on the return to saving to the following person? The person lives for two periods, earns all of her income in the first period and has a utility function U ( C 1 , C 2 ) = A C 1 + C 2 defined over consumption in the first and second period of her life. Here C 1 is her first–period consumption, C 2 is her second–period consumption, and A is a positive constant. 2. Show ( graphically, or otherwise ) the effect of the taxation of the return to saving on the
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