question: the impact of a simultaneaus decrease in real interest rate and increase on taxes on borrower and lender’s current consumption, future consumption and savings? Assume substitution effect equals income effect.
Breakdown of question should be like the following.
Effects for lender when real interest rate decrease? On current consumption, future consumption and savings.
Substitution Effect:
Income Effect:
Total Effect:
Effects for lender when taxes increase? On current consumption, future consumption and savings.
Substitution Effect:
Income Effect:
Total Effect:
Total effect of interest rate decrease and tax increase on lender? On current consumption, future consumption and savings.
Effects for borrower when real interest rate decreases? On current consumption, future consumption and savings.
Substitution Effect:
Income Effect:
Total Effect:
Effects for borrower when taxes increase? On current consumption, future consumption and savings.
Substitution Effect:
Income Effect:
Total Effect:
Total effect of interest rate decrease and tax increase on borrower? On current consumption, future consumption and savings.
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