1. Using a two-period income-consumption diagram, show the impact on current savings of a fall in the interest rate. Assume that the individual saved part of her income in period 1.

2. Using a two-period income-consumption diagram, show the impact of a rise in the interest rate assuming the household borrows in period 1.

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1 Impact of a Fall in the Interest Rate on Current Savings In a twoperiod incomeconsumption diagram we can illustrate the impact of a fall in the inte... View the full answer