# E how will the tax effect the consumers consumption

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(e) How will the tax effect the consumer's consumption in the first period? How will it effect the consumer's consumption in the second period? (Assume that both goods are normal). (f) Will the consumption in the first period change by more than 5 units? Why? (g) Assume now that the government decides to impose the tax in the second period rather than the first. Will this change the budget line? Will this change the choice of consumption? (h) Assume that initially government spending was zero in both periods. Then the government increased its spending in the first period to G =5 and financed it by
! taxes of 5 units in the first period. What will happen to national savings? Explain. 4. Answer question 3 under the assumption that !r =0.1 (and ! R =1.1 ). To simplify the calculations assume: Y =Y =11 . The questions are repeated here with slight changes. !1 2 (a) What is the price of consumption in period 1 in terms of consumption in period 2? (How many units of period 2 consumption must the consumer give up to get an additional unit of consumption in period 1)?

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• Fall '19
• representative, Consumer price index

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