Describe the effects of a decrease in the interest rate on present and next periods consumption if
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Describe the effects of a decrease in the interest rate on present and next period’s consumption if the individual is a net lender (i.e., has savings) after period 1 and the substitution effect is larger than the income effect. Show your answer graphically.
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When the interest rate decreases the cost of borrowing decreases incentivizing individuals to borrow ...View the full answer
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