This preview shows page 1. Sign up to view the full content.
Unformatted text preview: future. Labor income is taxed at a rate of 25%. ( 30 points ) a) What is this consumers human wealth? b) What is her total wealth? c) If she expects to live for seven more years after retiring and wants her consumption to remain the same (in real terms) every year from now on, how much can she consume this year? d) If she received a bonus of $20,000 in the current year only, with all future salary payments remaining as stated earlier, by how much could she increase consumption now and in the future? 4. Lets consider the two-period Fisher model. Suppose the interest rate, r , rises. What happens to his current consumption and future consumption when he is a borrower in the first period? Discuss the income and substitution effects on consumption in both periods. ( 25 points )...
View Full Document
- Winter '07