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Question: Dawna lives for 2 periods - 0 and 1. She earns income I0 = 280 and I1 = 310 and consumes C0 and C1 respectively. She can either borrow or save at r = 0.25 in period 0, 11 which affects her consumption in period 1. Her utility function is given by U = 28C2^1/2 + 24C2^1/2. In your answers to the questions below round all your calculations to 3 decimal points.
(a) Find her optimal consumption in both periods. Is she a saver or a borrower?
(b) If government taxes interest income at the rate of 20% and interest payment is tax deductible, find her optimal consumption in each period after taxation. Is she a saver or a borrower? What effect dominated in her saving? Briefly explain.
(c) If government taxes interest income at the rate of 20% but interest payment is not tax deductible, what would happen and why? Graph her optimal points from (a) and (b). Using results from (a) and (b) explain your conclusion and provide her optimal consumption values.
Question: Explain why the free rider problem makes it difficult for perfectly competitive markets to provide the Pareto efficient level of a public good.
Some commentators have argued that the failure of the “Super committee” is good thing for the economy? Do you agree?
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Article Review Question: Read the following excerpts from the article "Fruit, veg costs surge' by Todd, Dagwell, published in the Herald on January 25th 2011 and answer questions below:
Long-term Growth, International Trade & Globalization:- This question deals with concepts such as long-term growth, international trade and globalization. Questions related to trade deficit, trade surplus, gains from trade, an international trade sce..
"Does the economic bailout of Spain and Greece spell the beginning of the end for the European Monetary Union (EMU)?"
Read the rules of the game, the overview and the almanac for the Development Game "Settlers of Catan"
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