(36 points) Assume a consumer has current-period income y=220, future period income y=150, current and future taxes t=60 and t=50, respectively, and faces a market real interest rate of r=0. Consumer's preferences over current and future consumption are U(c,c)=min(c,c). The consumer faces a credit-market imperfection in that she cannot borrow at all, that is, s0. (a) (6 points) Calculate her optimal c,c,s. 1 (b) (6 points) Suppose that everything remains unchanged, except that now t=40 and t=70. Calculate the effects on current and future consumption and optimal saving. (c) (6 points) Calculate the marginal propensity to consume for this consumer following the tax change, that is, the change in the current consumption following the change in taxes and disposable income that it entails. Define the Ricardian equivalence and comment if it holds in this case. (d) (18 points) Now suppose alternatively that y=120. Repeat the above parts, and explain any differences. (36 points) Assume a consumer has current-period income y=220, future period income y=150, current and future taxes t=60 and t=50, respectively, and faces a market real interest rate of r=0. Consumer's preferences over current and future consumption are U(c,c)=min(c,c). The consumer faces a credit-market imperfection in that she cannot borrow at all, that is, s0. (a) (6 points) Calculate her optimal c,c,s. 1 (b) (6 points) Suppose that everything remains unchanged, except that now t=40 and t=70. Calculate the effects on current and future consumption and optimal saving. (c) (6 points) Calculate the marginal propensity to consume for this consumer following the tax change, that is, the change in the current consumption following the change in taxes and disposable income that it entails. Define the Ricardian equivalence and comment if it holds in this case. (d) (18 points) Now suppose alternatively that y=120. Repeat the above parts, and explain any differences