economic question: 12345678

Question 1 . - Suppose a version of our two-period model in Chapter 9 where each consumer works and earns 3! units of income in the current period, but then is retired and does not work (hence, earns zero income) in the future period. The consumer pays a lump-sum tax equal to t units of the consumption good in the current period, and no taxes in the future period. In order to be able to consume when retired, the consumer therefore needs to save a positive amount in the current period (put differently, all consumers are lenders). 3) bl dl Set up the budget constraints in the current and future period of a typical consumer's life. Derive the lifetime budget constraint. Sketch the lifetime budget constraint in a graph with c on the horizontal axis and c' on the vertical axis. Make sure to accurately label all important points in the graph, i.e. the intersections with the axes as well as the endowment point. Also indicate the slope of the lifetime budget constraint. The government decides to tax any income derived from retirement savings using a proportional tax rate b When saving 5 units of the consumption good, the consumer thus has to pay brs units in taxes in the future period. Following the same steps as in (a), show that the new lifetime budget constraint IS given by ' cf +(1+(1b)r)_y_t Show graphically how this tax on retirement income affects the consumer's consumption bundle. (This should be a NEW graph. However, to show the changes, you need to include the lifetime budget constraint from part (b) in this graph.) Do savings decrease or increase? Explain using income and substitution effects