Consider a two time period model.Suppose that initially there is public pension program.Then, the government decides to impose a tax, T, in the current time period to fund a new public pension program. Under the public pension program, the consumer will receive a pension equal to (1+r)T in the future period.

Refer to the graph below.Use the graph to briefly explain how the wealth substitution effect would change the consumer's savings behaviour after the pension

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