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 will consume ____ in year 1. Hint: when consumers are naive, they will believe they have 80+10=90 income in period 1, and 100 income in period 2.
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 will consume ____ in year 1. Hint: when consumers are naive, they will believe they have 80+10=90 income in period 1, and 100 income in period 2.
Chapter15: Monetary Policy
Section: Chapter Questions
Problem 2WNG
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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 will consume ____ in year 1.
Hint: when consumers are naive, they will believe they have 80+10=90 income in period 1, and 100 income in period 2.
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