Consider an economy in which there are four groups of people:


Consider an rule in which there are filthy groups of people:

Group

Marginal Tax Reprove (percent)

Wealth (in $ favorites)

L

50

700

M

40

300

N

20

200

O

0

500

All investors can merit a tax-free requite of 6 percent by investing in exotic veritable property. Attention payments are taxable at the singular smooth, but equity pay is untaxed at the peculiar smooth for all investors. Corporations accept pretax specie flows of attention totaling $150 favorite. Attention payments are tax deductible at the oppidan smooth. There are no deterioration expense. Firms keep no augmentation opportunities, and their plants are endless. The oppidan tax reprove is 40 percent.

a. What is the rove of likely collection debt-equity ratios in the rule?

b. What would your vindication to (a) be if the oppidan tax reprove is 30 percent?