Use relevant diagrams to answer thefollowing: a. If consumers foresee future taxes completely, what would bethe impact of reduction in taxes this year that is accompanied byan offsetting increase in future taxes, on the goods marketequilibrium. (Assumes a closed economy and thattaxes don’t impact investment decisions and also assume consumptionsmoothing) b. The tax code changes so that business firms face higher taxrates on their revenue (offset by other lump-sum tax changes sothere’s no overall change in tax revenue). What happens to saving,investment, real interest rate and current account balance in asmall open economy. . . .
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