Change in terms of consumption and interest rates

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Reference no: EM131391882

Why, in a model with no production but two periods does an increase in current taxes (without a concurrent change in government spending) not a?ect consumption? Explain graphically how such a change e?ects savings. Suppose that the model also included foreign lenders who were willing to supply consumers with consumption today in return for consumption tomorrow at the initial equilibrium interest rate. How would the results of the model change? Suppose that government spending increased in this last version of the model and the gross interest rate is given by the product of a discount factor and the MRS between consumption today and consumption tomorrow. How would the model likely change in terms of consumption and interest rates? [Thought Question]: Suppose there was production today, but not tomorrow, what would likely happen to output today?

Reference no: EM131391882

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