Linda can borrow or save money at an interest rate of 10%. Consider a simple two period model in which her income is $20,000 this year and $20,000 next year. Use this information to answer the following questions: (a) Suppose that interest income is taxed at a rate of 40%. Sketch Lindas budget line. Given this budget line, Linda chooses to save $10,000 in the first period. How much tax does Linda pay? What is her consumption in each period? Indicate this point on your sketch of Lindas budget line. (b) Suppose the government proposes removing the interest tax with a lump sum tax in period 2 that generates the same revenue as the interest tax. If this policy is implemented, Linda will pay the same total tax bill as in part (a), but interest income will no longer be not taxed. Sketch Lindas old and new budget lines. Does Linda prefer the old tax or the new tax? Is it possible to determine whether Linda will save more or less with the lump sum. (Hint: With the new tax, can Linda still afford her consumption bundle from part (a)?)