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c) In Canada, the average propensity has been around 0.96 since 2000. Over that same period, real personal disposable income has grown by 214%, while

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c) In Canada, the average propensity has been around 0.96 since 2000. Over that same period, real personal disposable income has grown by 214%, while real interest rates have averaged 214% (actually they quite a bit lower right now). Use your equation for APC to find the value of o for the Canadian economy. Based on that value, do Canadian consumers put more or less weight on present versus future consumption? d) For what follows, use the value of o you found in part c) as well as those you were given for g and r. If y, =100, find the level of o and c,. Demonstrate that your results satisfy the inter-temporal budget constraint. In this economy, do households save out of current income? e) Suppose now that the government introduces a pension plan that will be financed by future generations. The specifics are that current households can expect to receive a lump-sum payment in period 2 equal to 15% of their current income (i.e., 0.15xy ). First show how this change will affect your consumption function. Holding constant the values you have for a y and g, find the levels of " and c that are consistent with this new information. What has happened to saving out current income and why? In particular, is saving encouraged or discouraged by the introduction of the pension plan

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