Question: Consider the consumption-saving decision that we studied in Chapter 9. Explain how does a decrease in the current income y affect the consumer's consumption-saving decision.

Consider the consumption-saving decision that we studied in Chapter 9. Explain how does a decrease in the current income y affect the consumer's consumption-saving decision. In particular, explain: 1) How will current consumption c, future consumption c 0 , and savings s change; 2) Are there any substitution effect or income effect. Make sure you draw two figures, one for the borrowers and one for the lenders.

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