1. Consider a two-period economy with lump-sum taxes. Suppose the ment announces a tax cut of 10 in period 1 holding government spending constant in periods 1 and 2. (i.e., AT assuming no debt inherited from period 0, i.e., Bo 0. Suppose the interest rate is 10 percent govern- AG2 0.) We are -10, AG1 (a) Calculate the change in taxes in period 2, AT2. (b) Calculate the change in the primary and secondary fiscal deficits in pe- riod 1 (c) Calculate the change in the primary and secondary fiscal deficits in pe- riod 2

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