(Part (i) was just how much the consumer would save to spend the same in both periods and how much w… Show more (Part (i) was just how much the consumer would save to spend the same in both periods and how much would that be but I got that part fine.) Consider an economy where there are 10 identical consumers who contemplate their optimal consumption plan for two period. Assume now that the interest rate at which all consumers (and the government) can borrow and lend is zero. These consumers have income 60 in period 1 and income 40 in period 2. Assume that the government must spend a total of 200 in the first period to repair a damaged bridge, and that spending is financed by a distortionary tax on all 10 consumers such that every x dollars (per capita) raised cost consumers x + (1/10)x^2 dollars. (ii) Should the government run a deficit? Why? (iii) If the answer to (ii) is yes, how large exactly should the deficit be? (iv) Assume now that the spending must take place in period 2. How do your answers to parts (ii) and (iii) change? • Show less