7. Consider a two-period model in which a family works in the first period and earns $120,000 and works in the second period and earns $120,000. The family can save or borrow as much as they like and the interest rate is 100%. a. Draw the budget line before tax. b. Draw an indifference curve consistent with the family borrowing $40,000 in period 1. c. Suppose an income tax rate of 33.3% is imposed on labour and interest income. Draw the budget line after tax if mortgage interest is tax deductible. d. Draw the budget line after tax if mortgage interest is not tax deductible. Using indifference cuiges, show the impact of eliminating the tax deductibility of interest on borrowing. C2 ($x1000)

7. Consider a two-period model in which a family works in the first period and earns $120,000 and works in the second period and earns $120,000. The family can save or borrow as much as they like and the interest rate is 100%. a. Draw the budget line before tax. b. Draw an indifference curve consistent with the family borrowing $40,000 in period 1. c. Suppose an income tax rate of 33.3% is imposed on labour and interest income. Draw the budget line after tax if mortgage interest is tax deductible. d. Draw the budget line after tax if mortgage interest is not tax deductible. Using indifference cuiges, show the impact of eliminating the tax deductibility of interest on borrowing. C2 ($x1000)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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