Answer Happy

b. How does the increase in the tax rate affect the optimal choice of consumption (in the current and future periods) and saving for the consumer? Show how income and substitution effects matter for your answer, and phow how it matters whether the consumer is initially a borrower or a lender. The increase in the tax rate will have no effect on a consumer who was a consumer who was a increase in tax rate will Therefore, the net effects for a before the imposition of the tax. For a before the imposition of the tax, the income effect of the increase in tax rate will of an increase in tax rate are future period consumption, and i savings. The substitution effect of the current period consumption,