ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Assume i=0%, beta=1.
Consumer has income of 80 in year 1, 100 in year 2.
Now suppose gov't gives consumers a free check of 10 in year 1.
Suppose consumers are naive (they don't anticipate the free check is financed by borrowing from China, which needs to be paid back through more tax in period 2).
Consumer actually consumes ____ in year 2.
Hint: when consumers are naive, they will believe they have 80+10=90 income in period 1, and 100 income in period 2.
Hint 2: when year 2 comes, gov't needs to pay back the debt.
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