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Consider two competitive consumers who have the same endowment, with positive current income plotted on the horizontal axis and positive future income on the vertical axis. Each consumer’s current income is taxed at the rate t1 and future income is taxed at the rate t2. The first consumer becomes eligible in the current period to save up to $5000 in a traditional IRA, but there is no change in the consumer’s endowment and no change in the pretax market rate of return on saving, r. The second consumer becomes eligible in the current period to save up to $5000 in a Roth IRA. Again, there is no change in the consumer’s endowment and no change in the pretax market rate of return on saving. Money invested in a Roth IRA cannot be deducted from income tax, but the principal and return on the saving are not taxed.
a. Draw the effect on the consumers’ budget sets when they become eligible for the IRAs. Consider separately three cases in which t1 is greater than, less than or equal to t2. Assume that for both consumers borrowing is not tax deductible. Which type of IRA is more favorable for the consumers in each of these cases? Does the answer depend on the consumers’ preferences? If so, how? For each consumer, be as specific as possible, showing possible standard indifference curves and the slopes of all the segments of the consumers’ budget frontiers.
Keynesians would likely agree that: A. all unemployment is frictional unemployment. B. if a person isn't working, that's his or her own choice. C. structural and cyclical unemployment are more common than frictional unemployment. D. unemployment is i..
Suppose you know that the actual annual rate of return on a year of education is 5% for both types. Given the numbers in par (c), which type (Alphas or Betas) most likely receives more pure enjoyment from education?
A perfectly A Perfectly competitive firm has a MPL = 20-L. If P = $5 and w = $10/hr. What is the optimal quantity of labor demanded?
Tamara's best friend, Janine, who had been having bad luck the past couple of years developing good relationships, finally meets the "man of her dreams." She has been dating him for several weeks. There is only one problem: this man is married. To fu..
In 2012, a group in Germany proposed a “wealth tax” -- on building, machinery and equipment—that would be levied on all employers having at least $1.4 million invested in such assets. Use the labor market theory learned in this chapter to analyze the..
Describe the general characteristics of oligopolies. Describe the economic characteristics unique to the airlines
What performance % would you use to trigger executive bonuses for that year.
A small city is beginning to experience a large population growth of 10% per year. At the end of 2010 the population was 16,000 people. If the growth rate continues, how many years will it take for the population to triple?
There are two firms that are producing identical goods in a market characterized by the inverse demand curve P:60 -2Q, where Q is the sum of Firm l's and Firm 2's output, qft qz. Each firm's marginal cost is constant at$12, and fixed costs are zero. ..
Suppose that the labor market is competitive and there are a total of 1,000 black workers and 1,000 white workers (who each supply their labor in elastically). Both black and white workers are equally productive, having constant individual dollar pro..
Identify the most important obstacle that makes the retail market of canned soft drinks not perfectly competitive and suggest ONE government policy to enhance market efficiency by promoting the competition in retail market of canned soft drinks.
Should you raise the price of your widgets? What will be the effect on total revenue? Include elasticity, consumer and producer surplus, utility maximization, consumer equilibrium.
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