1) We discussed the intertemporal choice model in great depth. How do the following models differ from the assumptions of the intertemporal choice model? Specifically, explain how the models hypothesize the accumulation of savings by individuals. [6 points]

(a) Precautionary savings models.

(b) Self-control models.

2)Do each of the following features of a tax system INCREASE or DECREASE the incentive to take risk in financial markets? Explain your answers. [9 points]

(a) Tax loss offsets

(b) A progressive income tax structure

(c) A flat tax rate on capital gains

3) In the United States, federal taxes on investors' capital gains income are lower than the tax rates on dividend income. Despite being taxed at a higher rate than capital gains, why would a corporation ever prefer to offer dividends to its shareholders? Provide one reason and explain it. [5 points]