Assume an economy with 1,000 consumers. Each consumer has income in the current period of 50 units...

Question

Assume an economy with 1,000 consumers. Each consumer has income in the cu
ent period of 50 units and future
income of 60 units and pays a lump-sum tax of 10 units in the cu
ent period and 20 units in the future period. The
market real interest rate is 8%. Of the 1,000 consumers, 500 consume 60 units in the future, while 500 consume 20
units in the future.
(a) Determine each consumer’s cu
ent consumption and cu
ent saving.
Given,

Cu
ent Income = 50 units
Future Income = 60 units
Cu
ent Taxes are 10 units
Future Taxes = 20 units

We know,

Income - Taxes = Disposable Income

Hence,

Cu
ent Disposable income is 40 units
And Future Disposable income is, 40 units later.

Type 1.
Future consumption: 60 units.

Total consumption = cu
ent consumption + future consumption
(50-10) + (60-20) = cu
ent consumption + 60
80 = cu
ent consumption + 60
Cu
ent consumption = 20
Cu
ent savings =...

David · Accepted Answer

Assume an economy with 1,000 consumers. Each consumer has income in the current period of 50 units and future 
income of 60 units and pays a lump-sum tax of 10 units in the current period and 20 units in the future period. The 
market real interest rate is 8%. Of the 1,000 consumers, 500 consume 60 units in the future, while 500 consume 20 
units in the future.
(a) Determine each consumer’s current consumption and current saving.
Given, 
 
Current Income = 50 units 
Future Income = 60 units  
Current Taxes are 10 units  
Future Taxes  = 20 units 
 
We know, 
 
Income - Taxes = Disposable Income 
 
Hence, 
 
Current Disposable income is 40 units  
And Future Disposable income is, 40 units later. 
 
Type 1. 
Future consumption: 60 units.

Assume an economy with 1,000 consumers. Each consumer has income in the current period of 50 units and future income of 60 units and pays a lump-sum tax of 10 units in the current period and 20 units...

Solution

Answer To This Question Is Available To Download

Related Questions & Answers

Submit New Assignment