( 1 ) If the consumer would optimally like to consume equal amounts in the two periods how much does he need to save in period 1 ? How much will he end up consuming in both periods ? Suppose now that economy is populated by many copies of such consumers ( whose income and optimal choices are all as described above ) . The government decides to offer a deficit financed transfer of 10 in period I to all consumers . Assume that the government can borrow and lend at the same rate ( 10% ) as consumers , and that the deficit is repaid by Jump - sum axes in period 2 ( 11 ) How do optimal savings respond to this government policy ? ( in1 ) What is the optimal consumption sequence for consumers faced with this policy ? Assume now that the government offers the mirror image of this policy , raising lump sum axes of 10 for all consumers in the first period , and giving transfers of II in the second ( iv ) How do optimal savings respond to this government policy ? ( vi ) What is the optimal consumption sequence for consumers faced with this policy