1. Suppose that the world is populated by people who are identical in every dimension except for their savings behaviour. People live for two periods, earning C500 in the first period and nothing in the second period. The income tax on labour earnings and interest income is 50% and the interest rate earned on savings is 8%. There are two types of people. "Hand-to-Mouth consumers consume everything in the first period, and "Smoothers" split their consumption exactly equally between the two periods. a) How much tax would Hand-to-Mouth consumers and Smoothers pay in each of the two periods? b) Suppose the income tax is replaced by 90% consumption tax. In this system, for every C1 in consumption, the person is charged 60.90 in tax. How much tax will each type of consumer pay in each period now? c) Compare the present value of the taxes paid by the two types of consumers under the two types of tax system. Which tax system is more equitable