Need help with this practice problem Please and thanks in advanced. Problem 1: Consumption1.1 What is the impact of a temporary tax cut on current consumptionaccording to:a. the Keynesian consumption function? Explain your answer briefly.b. the permanent-income hypothesis? Explain your answer briefly.1.2 Jack and Jill both obey the two-period Fisher model of consumption.Jack earns $100 in the first period and $100 in the second period. Jillearns nothing in the first period and $210 in the second period. Both ofthem can borrow or lend at the interest rate r./a. You observe both Jack and Jill consuming $100 in the first period and$100 in the second period. What is the interest rate r? (Hint: writedown the intertemporal budget constraint for Jack and Jill and check)b. Suppose the interest rate increases. What will happen to Jack'sconsumption in the first period? Is Jack better-off or worse off thanbefore the interest rate rise?c. What will happen to Jill's consumption in the first period when theinterest rate increases? Is Jill better off or worse off than before theinterest rate increase?

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Problem 1: Consumption 1.1 What is the impact of a temporary tax cut on current consumption according to: a. the Keynesian consumption function? Explain your answer briefly. b. the permanent-income hypothesis? Explain your answer briefly.

Problem 1: Consumption 1.1 What is the impact of a temporary tax cut on current consumption according to: a. the Keynesian consumption function? Explain your answer briefly. b. the permanent-income hypothesis? Explain your answer briefly.

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter18: The Keynesian Model

Section: Chapter Questions

Problem 9SQP

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Comparative Advantage and Absolute Advantage Analysis

The theory of absolute advantage was given by Adam Smith in the year 1776.

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Need help with this practice problem Please and thanks in advanced.

Problem 1: Consumption
1.1 What is the impact of a temporary tax cut on current consumption
according to:
a. the Keynesian consumption function? Explain your answer briefly.
b. the permanent-income hypothesis? Explain your answer briefly.
1.2 Jack and Jill both obey the two-period Fisher model of consumption.
Jack earns $100 in the first period and $100 in the second period. Jill
earns nothing in the first period and $210 in the second period. Both of
them can borrow or lend at the interest rate r./
a. You observe both Jack and Jill consuming $100 in the first period and
$100 in the second period. What is the interest rate r? (Hint: write
down the intertemporal budget constraint for Jack and Jill and check)
b. Suppose the interest rate increases. What will happen to Jack's
consumption in the first period? Is Jack better-off or worse off than
before the interest rate rise?
c. What will happen to Jill's consumption in the first period when the
interest rate increases? Is Jill better off or worse off than before the
interest rate increase?

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