Solve the following mathematically. 3. Consider the situation of an individual whose preferences are:...
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Finance
Solve the following mathematically.
3. Consider the situation of an individual whose preferences are: ln(ct) +ln(ct+1). The discount factor is equal to 0.92 .Labor income thefirst period is 1200, and your labor income the second period is 1100. The interest rate is 13 percent.
(a) Write down the maximization problem for this individual.
(b) Solve the maximization problem and find current consumption, future consumption and savings.
(c) Consider a policy that imposes a tax on consumption equal 20 in percent (same tax in both periods). Compute how the individual's behavior changes.
(d) Consider now a different policy that imposes a tax on capital income equal 15 percent. Compute how the individual's behavior changes.
(e) Compare both policies in terms of individuals' welfare and fiscal revenues
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