Introduce government into the 2-period model. The budget constraints are: G+/(1+r)=(y-7)+(y, - TY/(1+r) and gi+g./(1+r)=T + /(1+r). Assume g=77=1/2 and g2=12=1/2. (4) Using your answer from (3) and making the necessary adjustments, what is the interest rate in this economy as a function of g, and g - (1 pt.) (5) Suppose there is a decrease in time 1 government purchases from 1/2 to 1/3. What happens to the equilibrium interest rate as calculated in (4) Explain. (What happens to time 1 total saving as function of r?) (2 pts.) (6) Suppose there is a decrease in time 1 and 2 government purchases to from 1/2 to 1/3. What happens to the equilibrium interest rate as calculated in (4). (1 pt.) 4 (7) Suppose gi=1;=1/2 and g;=r;=1/2. What happens to the equilibrium interest rate as calculated in (4) if there is a time 1 tax cut with no change in government spending? Explain. (2 pts.) Introduce government into the 2-period model. The budget constraints are: G+/(1+r)=(y-7)+(y, - TY/(1+r) and gi+g./(1+r)=T + /(1+r). Assume g=77=1/2 and g2=12=1/2. (4) Using your answer from (3) and making the necessary adjustments, what is the interest rate in this economy as a function of g, and g - (1 pt.) (5) Suppose there is a decrease in time 1 government purchases from 1/2 to 1/3. What happens to the equilibrium interest rate as calculated in (4) Explain. (What happens to time 1 total saving as function of r?) (2 pts.) (6) Suppose there is a decrease in time 1 and 2 government purchases to from 1/2 to 1/3. What happens to the equilibrium interest rate as calculated in (4). (1 pt.) 4 (7) Suppose gi=1;=1/2 and g;=r;=1/2. What happens to the equilibrium interest rate as calculated in (4) if there is a time 1 tax cut with no change in government spending? Explain. (2 pts.)