Determine how consumer optimal choice of current consumption

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Reference no: EM13235519

Suppose that a consumer's future income increases, and the real interest rate increases as well. In a diagram, determine how the consumer's optimal choice of current consumption and future consumption changes and how saving changes. Show how your results depend on income and substition effects and consider the cases where the consumer is initially a lender and where he or she is initially a borrower.

Reference no: EM13235519

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