Question: MACRO ECONOMICS - PLEASE SIMPLY OUTLINE CORRECT ANSWER Consider the simple two period model of consumption-savings decision. Suppose a tax increase today and a tax

MACRO ECONOMICS - PLEASE SIMPLY OUTLINE CORRECT ANSWER

Consider the simple two period model of consumption-savings decision. Suppose a tax increase today and a tax cut tomorrow happen so that the lifetime spending of the government is same as before. Suppose the Ricardian Equivalence holds. The representative consumer, in response, will O A. save less and consume less today O B. will not change consumption pattern O C. save less and consume more today O D. may increase/decrease consumption depending on whether he is borrower or lender O E. save more and consume less todayConsider a numerical example of the Solow model. Assume that n = 0.1 S = 0.3 d = 0.1 Z = 2 F(K,N) = KN Find the steady state consumption per person O A. 1.84 O B. 2.63 O C. 3.95 O D. 0.79 O E. None of the above

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