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1. Suppose you are given the utility function: VC U = vc + 1.10 CI and the budget constraint: c+ =yt 1+r 1+r where y

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1. Suppose you are given the utility function: VC U = vc + 1.10 CI and the budget constraint: c+ =yt 1+r 1+r where y = 5, y' = 10, and the interest rate r = 0.10. Now suppose that y=5 again, and there is only one consumer in the entire economy. If we add in government expenditures and taxation, the consumer's budget constraint is now: c+ y' = y + -t- +r 1+r 1+r If current and future government expenditure is: g = 1,8 = 3.3, and if current taxation t = 2: e) What is the value of second period taxation, t'? f) What is the optimal value of current consumption c*? B) What is the optimal value of future consumption, c'*? Suppose that current taxation decreases decrease from t = 2 tot =1.5. h) What is now the value of second period taxation, t'? i) What is the optimal value of current consumption c*? 1) What is the optimal value of future consumption, c

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