This will decrease consumption today a lower interest

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Unformatted text preview: interest rate today will decrease the price of consuming today relative to the price of consuming tomorrow. This will increase consumption today. A higher income tax rate (holding the real interest rate constant) will lower the consumption share of GDP. This is illustrated as a shift in the C/Y line to the left. A lower income tax rate (holding the real interest rate constant) will raise the consumption share of GDP. This is illustrated as a shift in the C/Y line to the right. Investment A higher interest rate will raise the cost of borrowing and will discourage investment. A lower interest rate will lower the cost of borrowing and will encourage investment. The Investment Share and the Real Interest Rate Invest...
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