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7. (12 points) Continue with the version of the two-period consumption model discussed in question (4). (a) Calculate the present value of the consumer's
7. (12 points) Continue with the version of the two-period consumption model discussed in question (4). (a) Calculate the present value of the consumer's tax expenditures. (b) Suppose that the government reduces t from 20 to 10, but does not change cur- rent or future goverment purchases. What happens to the present value of tax expenditures, and what happens to t'? (c) Find the new optimal values of current consumption and saving. Briefly explain.
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