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...

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Extracted text: 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 $40,000 in period 1. c. Suppose an income tax rate of 33.3% is imposed on labour and interest income. Draw the budget line after tax if mortgage interest is tax deductible. d. Draw the budget line after tax if mortgage interest is not tax deductible. Using indifference cuges, show the impact of eliminating the tax deductibility of interest on borrowing. C2 ($x1000) 360 320 280 240 200 160 120 80 40 20 40 60 80 100 120 140 160 180 200 C ($x1000)