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Suppose that a person lives for two periods, earning $100 in income in period 1, during which she consumes or saves for period 2. What is saved earns...
Suppose that a person lives for two periods, earning $100 in income in period 1, during which she consumes or saves for period 2. What is saved earns interest of 100% per year.
Draw that person's intertemporal consumption budget constraint and her consumption decision if the government taxes interest at the rate of 10% and income at the rate of 10%. Explain your graph.
Note: Mark slope, X-intercept and Y-intercept of your graphs.