Budget constraint and choice of optimal consumption bundles

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Suppose that the Government wants to augment the level of national savings in the economy and institutes a policy to reward savings behavior. Hence, borrowers face a real interest r as always, but lenders receive r(1+s) on their savings, where ‘s’ is the savings subsidy, 0 < s < 1. Show the effect of this introduction on a consumer’s lifetime b budget constraint and choice of optimal consumption bundles.

Reference no: EM131118539

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