An economy consists of a household and the government The household lives two periods (the current period and the "future"). In each period, the
household receives income: it pays taxes to the government, and it consumes. There are no
transfer payments. Therefore Net Taxes (T)-Taxes-Tr-Taxes. The household does not leave any
bequest (it ends the future period with no resources). The household starts the current period with
no debt. The value of its initial assets is given. The household can borrow and lend at the real
Interest rater.
The value of the real interest rate is r = 0.25. Round all answers to the second decimal
Assume throughout that the household wants the ratio of future consumption to current
consumption to equal 1+r.
Current Period
• Households' income (before taxes): 20
• Initial Assets: 10
• Taxes: 10
Future Period
• Households' income (before taxes): 30
• Taxes: 5
a. The present value of lifetime resources (lifetime disposable income plus assets) is__
b. The value of current consumption is __
The value of private savings is
and the value of lending is__