Question 4 Explain how does a decrease in the current income y affect the consumer's consumption-saving decision. In particular, explain: 1) How will current consumption c, future consumption c', and savings s change; 2) Are there any substitution effect or income effect. Make sure you draw two figures, one for the borrowers and one for the lenders.
Question 4 Explain how does a decrease in the current income y affect the consumer's consumption-saving decision. In particular, explain: 1) How will current consumption c, future consumption c', and savings s change; 2) Are there any substitution effect or income effect. Make sure you draw two figures, one for the borrowers and one for the lenders.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Question 4
Explain how does a
decrease in the current income y affect the consumer's consumption-saving decision. In particular,
explain: 1) How will current consumption c, future consumption c', and savings s change; 2) Are
there any substitution effect or income effect. Make sure you draw two figures, one for the borrowers
and one for the lenders.
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