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Indicate the optimal consumption point

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Reference no: EM132559107

For a consumer who is initially a borrower, use a budget line-indifference curve diagram to analyse the effect of an increase in the real interest rate. You can use one diagram to answer part (a) and (b) together.

a) In your diagram, please indicate the no borrowing-and-no lending point, and indicate the optimal consumption point.

b) In your diagram, clearly show the income and substitution effects.

Reference no: EM132559107

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