4. In an infinite period model, let y denote output and let ß = (1+r)¹. Let LATRI denote lifetime after-tax real income, where LATRI is defined as (for simplicity, all current and future taxes are 0): LATRI =y++By++1 + B²y++2 + Solve the right-hand side of LATRI by eliminating the future output variables in the following way: use the following equations for future output, where it is assumed that output grows by g percent each period (year); for example, g = 0.03, so that output grows by 3% per year: Y+1 (1g) y₁, Yt+2 = (1 + g) Yt+1, and so on. Use these equations, along with the rule for an infinite-period sum, to show that the equation for LATRI can be solved such that LATRI depends on current-period output y₁, as well as on r and g. Show your work. After deriving the equation for LATRI, do the following calculation. Assume that r equals 0.04, g equals 0.03, and y, is $40,000, and use the equation to calculate the dollar amount for LATRI (note that $40,000 x 1.04 equals $41,600). How many million dollars is LATRI equal to?

4. In an infinite period model, let y denote output and let ß = (1+r)¹. Let LATRI denote lifetime after-tax real income, where LATRI is defined as (for simplicity, all current and future taxes are 0): LATRI =y++By++1 + B²y++2 + Solve the right-hand side of LATRI by eliminating the future output variables in the following way: use the following equations for future output, where it is assumed that output grows by g percent each period (year); for example, g = 0.03, so that output grows by 3% per year: Y+1 (1g) y₁, Yt+2 = (1 + g) Yt+1, and so on. Use these equations, along with the rule for an infinite-period sum, to show that the equation for LATRI can be solved such that LATRI depends on current-period output y₁, as well as on r and g. Show your work. After deriving the equation for LATRI, do the following calculation. Assume that r equals 0.04, g equals 0.03, and y, is $40,000, and use the equation to calculate the dollar amount for LATRI (note that $40,000 x 1.04 equals $41,600). How many million dollars is LATRI equal to?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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