URGENT!

1. Consider a two period scenario. An individual earns $300 in period 1 and $100 in period 2. The individual can freely save of borrow against future income between the periods. The interest rate on saving and borrowing is 5%. The individual utility function Inc. is: u(4.c)= Inc + 1+ where is consumption in period 1, c, is consumption in period 2 and r is the interest rate. a) Suppose an income tax of 7% is imposed on the individual in both periods. The tax is imposed on earnings in a given period but exempts income from interest on savings. 1 Calculate the present value of tax revenue in this scenario. (2 marks). How much income will individual save or borrow between periods? (3 mraks) b) Suppose a consumption tax is considered instead of an income tax in part a). What is the rate of a consumption tax that would generate the same present value of tax revenue as the income tax in part a)? (3 marks) How much income will individual save or borrow between periods? (3 marks) 1. Consider a two period scenario. An individual earns $300 in period 1 and $100 in period 2. The individual can freely save of borrow against future income between the periods. The interest rate on saving and borrowing is 5%. The individual utility function Inc. is: u(4.c)= Inc + 1+ where is consumption in period 1, c, is consumption in period 2 and r is the interest rate. a) Suppose an income tax of 7% is imposed on the individual in both periods. The tax is imposed on earnings in a given period but exempts income from interest on savings. 1 Calculate the present value of tax revenue in this scenario. (2 marks). How much income will individual save or borrow between periods? (3 mraks) b) Suppose a consumption tax is considered instead of an income tax in part a). What is the rate of a consumption tax that would generate the same present value of tax revenue as the income tax in part a)? (3 marks) How much income will individual save or borrow between periods