refer to the attachments.

Question 4 (20 points) Suppose Montana establishes an income tax schedule that has a tax rate of 5% on the first $20,000 of income, 10% on the next $10,000, and then 20% on all taxable income above $30,000. Montana provides a $2,000 exemption (deduction) per family member. (Let's call this tax system A.) 1. The Abrams family has three members. Thomas is the sole earner, and he has two kids. The family's annual income is $35,000. Calculate their:27. In the Solow model, assume the economy is initially in a steady state in which there is no growth of output per capita. At time t there is a sudden fall in the growth rate of the population and it remains at the new lower growth rate. Describe what happens to output growth and to the growth of living standards in the economy and why. Now assume there is labor augmenting technical progress: how does that affect the growth of the economy in response to a fall in the population growth rate?2. Explain why there is a range of constantinflation w'iemployment rates in an open economy. What determines how broad this range is'? What effect do the following have on the slope of the ERU ounre'? {a} a change in tastes: domestic consumers now prefer more foreign goods. {on} new employment protection legislation makes real wages less semitiye to the level of unemployment. {c} the country relaxes restrictions on foreign trade. 16. "Devaluation cannot affect the trade deficit because the latter must equal the difference between investment and saving, and neither of these magnitudes is affected by the exchange rate." What is wrong with this argument in the context of an open economy with sticky prices?32. Judy decides to take a short position in 20 contracts of S&P 500 futures. Each contract is for the delivery of 250 units of the index at a price of 1500 per unit, exactly one month from now. The initial margin is 5% of the notional value, and the maintenance margin is 90% of the initial margin. Judy earns a continuously compounded risk-free interest rate of 4% on her margin balance. The position is marked-to-market on a daily basis. On the day of the first marking-to-market, the value of the index drops to 1498. On the day of the second marking-to-market, the value of the index is X and Judy is not required to add anything to the margin account. Calculate the largest possible value of X. (A) 1490.50 (B) 1492.50 (C) 1500.50 (D) 1505.50 (E) 1507.50 IFM-01-18 Page 16 of 105 33. Several years ago, John bought three separate 6-month options on the same stock. Option I was an American-style put with strike price 20. Option II was a Bermuda-style call with strike price 25, where exercise was allowed at any time following an initial 3-month period of call protection. Option III was a European-style put with strike price 30. When the options were bought, the stock price was 20. When the options expired, the stock price was 26. The table below gives the maximum and minimum stock price during the 6 month period: Time Period: 1* 3 months of Option Term 2" 3 months of Option Term Maximum Stock Price 24 28 Minimum Stock Price 18 22 John exercised each option at the optimal time. Rank the three options, from highest to lowest payoff. (A) I> II > III (B) I > III > II (C) I > I > III (D) III > I> II (E) III > II > Ic. Given your answer in part b. suppose that the consumer earnings during middle age turn out to be $100.000. How much will she spend in each period of her life? Will consumption be constant over the consumer lifetime? (Hint: When the consumer reaches middle age, she will try to maintain constant con- sumption for the last two periods of life. as long as she can consume at least $20.000 in each period) (7pts)