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Solve it Step by Step please Fisher and OLG Models 5. Consider an economic agent who lives two periods, starts and ends life with zero
Solve it Step by Step please
Fisher and OLG Models 5. Consider an economic agent who lives two periods, starts and ends life with zero assets. He earns 90 in the first period and 150 in the second. Credits and deposits are available and interest r ate is 20%. The utility function is the CRRA one, and discount factor is equal to 0,25 . In the first period of agent's life the government issued government bonds to finance the budget deficit equal to 45 . The debt is going to be fully repaid in the second period. The government has two options: to Introduce tax of 45 in the first period (option 1) or to introduce income tax in the second period (option 2). (a) Compute the levels of optimal consumption in both periods if the government chooses option 1. (b) Compute the tax rate that the government should impose if it chooses the option 2. Compute the levels of optimal consumptionStep by Step Solution
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