1.a) First, define the competitive equilibrium for the two-period model (consumer has endowments in both periods, the government can tax or borrow, there is no firm): b) Suppose the government in this economy proposes two different sets of taxation plans: i. Finance government expenditure in the rst period by borrowing only, that is t = 0, B = G and t' = G(1 + r)+G'; ii. Make current tax t equals to 75% of today's government expenditure and borrow to nance the rest, such that t = 0.75G and B = 0.25G, t' = 0.25G(1+r) + G'. Which one would the consumer prefer? Explain your answer

2.Suppose that there are two countries, which are identical except that country A has a higher capital stock than does country B. What does the real intertemporal model tell us about how these countries will look different (in terms of real wage, interest rate, employment, output, investment, consumption) ? Explain.