Pay higher taxes in the future to offset the current cuts

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Assume that the typical household behaves according to Irving Fisher's two period model, that consumption in both periods is a normal and that households are initially savers.With the aid of a diagram, analyse how a tax cut in period two affects consumption in both periods.

Assume that the average consumer does not believe that he/she or anyone in the family will ever have to pay higher taxes in the future to offset the current cuts.

Reference no: EM131115326

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