Explain how does adecrease 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) Arethere any substitution effect or income effect. Make sure you draw two figures, one for the borrowersand one for the lenders.

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A: We are going to solve for Original and New budget constraint to answer this question.

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A:

Q: . Martha has preferences represented by the utility function U(a,b) = ab/100, where "a" is the…

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