Consider the following effects of an increase in lump-sum taxes in a two-period endowment economy.

a. Taxes increase by t in the current period. How does this affect current consumption, future consumption, and saving?

b. The increase in taxes t is permanent, i.e. in the current and in the future period. Use a diagram to determine how this affects current consumption, future consumption and current saving. Explain the differences between your results here and in part (a)