Unformatted text preview: a. Draw her budget constraint. b. Now suppose that her lump sum payment is reduced dollar for dollar by an earnings she would make working. The means that her net wage is zero if she earns less than $1,000. Show how the new budget constraint would look. c. Will she work more or less in part b? Why? 4. Sam earns $50,000 currently. He expects to earn 200 % on any money he invests in the company pension plan between now and his retirement in twenty years. Except for the money he invests he anticipates no other retirement income. a. Show his budget constraint. b. What is the slope of his budget constraint? c. What is the opportunity cost of current consumption for Sam? d. Suppose that he inherits a trust fund that will pay him $10,000 when he retires. How will his budget constraint change? Will he save more or less?...
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This note was uploaded on 10/17/2011 for the course EC 201 taught by Professor Haider during the Spring '10 term at Michigan State University.
- Spring '10