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5) Please decompose the impact of an increase in the interest rate (r) into Substitution and Income Effects for someone who is an initial saver.
5) Please decompose the impact of an increase in the interest rate (r) into Substitution and Income Effects for someone who is an initial saver. Assume that first-period consumption is an inferior good. What is the net or total effect on first-period consumption? Please evaluate the above statement using a graph, and explain your graph in words. Please answer in the context of our class discussion.
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