Bora's income in the current period is y=200, and income in the future period is y'=250. He pays lump-sum taxes t=30 in the current period and t'=10 in the future period. The real interest rate is 5%, per period.Suppose that Bora will always choose current consumption, c and the future consumption, c′ in a constant proportion:c=32c′ a) Determine the optimal current-period and future-period consumption for Bora. b) Determine the optimal saving for Bora, and show this in a diagram with his budget constraint and indifference curves, and also determine if Bora is a lender or a borrower?
Bora's income in the current period is y=200, and income in the future period is y'=250. He pays lump-sum taxes t=30 in the current period and t'=10 in the future period. The real interest rate is 5%, per period.Suppose that Bora will always choose current consumption, c and the future consumption, c′ in a constant proportion:c=32c′ a) Determine the optimal current-period and future-period consumption for Bora. b) Determine the optimal saving for Bora, and show this in a diagram with his budget constraint and indifference curves, and also determine if Bora is a lender or a borrower?
Chapter17: Capital And Time
Section: Chapter Questions
Problem 17.2P
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Bora's income in the current period is y=200, and income in the future period is y'=250. He pays lump-sum taxes t=30 in the current period and t'=10 in the future period. The real interest rate is 5%, per period.Suppose that Bora will always choose current consumption, c and the future consumption, c′ in a constant proportion:c=32c′
a) Determine the optimal current-period and future-period consumption for Bora.
b) Determine the optimal saving for Bora, and show this in a diagram with his budget constraint and indifference curves , and also determine if Bora is a lender or a borrower?
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