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Unformatted text preview: Econ 154b Yale University Spring 2005 Prof. Tony Smith HOMEWORK #4 This homework assignment is due at the beginning of lecture on Wednesday, February 16. 1. Consider an economy that consists of a single consumer who lives for two time periods. The consumer’s income in the current period is Y and the consumer’s income in the future period is Y f . The consumer pays taxes equal to T in the current period and pays taxes equal to T f in the future period. The government uses these taxes to finance government expenditures, which are equal to G in the current period and equal to G f in the future period. The consumer can freely borrow and lend at interest rate r , so that his budget constraint reads: C + C f 1 + r = Y- T + Y f- T f 1 + r , where C is the amount that the consumer consumes in the current period and C f is the amount that he consumes in the future period. Assume throughout this problem that the government satisfies its budget constraint: G + G f 1 + r = T + T f 1 + r ....
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- Spring '07
- Macroeconomics, ASCII, government spending