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Suppose that a consumer's future income increases, and the real interest rate increases as well. In a diagram, determine how the consumer's optimal choice of
Suppose that a consumer's future income increases, and the real interest rate increases as well. In a diagram, determine how the consumer's optimal choice of current consumption and future consumption changes and how savings changes. Show how your results depend on income and substitution effects and consider the case where the consumer is initially a lender and where he or she is initially a borrower.
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