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Let c and c0 denote the consumption of the current and future periods respectively. The disposable income of the current period is y t and
Let c and c0 denote the consumption of the current and future periods respectively. The disposable income of the current period is y t and that of the future period is y0 t0 . The consumer faces an interest rate of r. Use figures with c on the x-axis and c 0 on the y-axis to explain how does a decrease in the real interest rate affects consumer's consumption-saving decision. Make sure you separately discuss it for borrowers and lenders
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