Claire inherited a bunch of random stuff from her grandmother, including a pile of dusty old government bonds. Claire decided to redeem all her government bonds and got a huge windfall of $100,000 in cash. Because of this windfall, Claire has decided to pursue her dream, and take two years off from her job to write a novel. Claire has to think about her budget for the year. She needs to be able to live off her windfall for both years. If she saves some money in the first year, she receives a return of r percent on her savings. Claire will need to pay an ad valorem capital tax, tK, on her windfall income. She will also need to pay an ad valorem consumption tax, tC, on whatever she consumes.1 In addition, because she isn’t working, Claire will get a tax credit of T dollars from the government. Write and explain Claire’s budget constraint for her two-year sabbatical. Use a graph to explain how every additional step changes her budget constraint. Remember to integrate the math with your writing—you need to explain what you’re doing.
Claire inherited a bunch of random stuff from her grandmother, including a pile of dusty old government bonds. Claire decided to redeem all her government bonds and got a huge windfall of $100,000 in cash. Because of this windfall, Claire has decided to pursue her dream, and take two years off from her job to write a novel. Claire has to think about her budget for the year. She needs to be able to live off her windfall for both years. If she saves some money in the first year, she receives a return of r percent on her savings. Claire will need to pay an ad valorem capital tax, tK, on her windfall income. She will also need to pay an ad valorem consumption tax, tC, on whatever she consumes.1 In addition, because she isn’t working, Claire will get a tax credit of T dollars from the government. Write and explain Claire’s budget constraint for her two-year sabbatical. Use a graph to explain how every additional step changes her budget constraint. Remember to integrate the math with your writing—you need to explain what you’re doing.
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