Compute and label all relevant values in your graph

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Jesse earns $82,000 in the current period, but his income will drop to 19,170 in period 2. Sketch his inter-temporal budget line assuming a 6.5 percent rate of interest and draw an indifference curve to illustrate optimal consumption in both periods assuming he optimally chooses to save $40,000 in the current period. Show the effect of a 50 percent tax on interest income assuming the substitution and income effects cancel each other out. Comput and label all relevant values in your graph.

Reference no: EM1358399

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