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Question: Assume the two-period Fisher model, where the government and the household both have to abide by ...

Show transcribed image text Assume the two-period Fisher model, where the government and the household both have to abide by two-period budget constraints, and where there is no investment expenditure. Suppose you have the following information: C_2 = (Y_2 – T_2) + (1 + r) (Y_l – T_1 – C_l)] a) Compute what the interest rate must be. b) Present a graph for the two-period model and clearly label; i) the vertical and horizontal intercepts with numerical values; ii) the value for disposable income in each period; and iii) the point of consumer equilibrium with the numerical value for C in each period. c) Suppose, in order to stimulate the economy in period 1, the government cuts taxes in period 1 to 0 (T falls from 65 to 0) with no change in government spending in either period. What is the effect on consumption in period 1?

Assume the two-period Fisher model, where the government and the household both have to abide by two-period budget constraints, and where there is no investment expenditure. Suppose you have the following information: C_2 = (Y_2 – T_2) + (1 + r) (Y_l – T_1 – C_l)] a) Compute what the interest rate must be. b) Present a graph for the two-period model and clearly label; i) the vertical and horizontal intercepts with numerical values; ii) the value for disposable income in each period; and iii) the point of consumer equilibrium with the numerical value for C in each period. c) Suppose, in order to stimulate the economy in period 1, the government cuts taxes in period 1 to 0 (T falls from 65 to 0) with no change in government spending in either period. What is the effect on consumption in period 1?