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We observe that humans prefer to smooth consumption. If the real interest rate was 0% and you lived for 3 periods and your income in

We observe that humans prefer to smooth consumption. If the real interest rate was 0% and you lived for 3 periods and your income in period 1 is 125, period 2 125, & period 3 150: how much would you consume in

1.period 1?

2.Period 2?

3.Period 3?

4. If the real interest rate rises to 5% the income effect says your should consume more or less in period 1?

5. If the real interest rate rises to 5% the substitution effect says your should consume more or less in period 1?

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