Question: 2. Consider an individual whose preferences are: ln(ct) + ln(ct+1). The discount factor is equal to 0.4. Your income the first period is 723, and

2. Consider an individual whose preferences are: ln(ct) + ln(ct+1). The discount factor is equal to 0.4. Your income the first period is 723, and your income the second period is 327. The interest rate is 5 in percentage. (a) Write down the maximization problem for this individual. (b) Solve the maximization problem and find current consumption, future consumption, and savings. (c) How would your answer change if the interest rate falls or increases by 50%? (You need to address both cases.) (d) Suppose now that the government imposes a tax of 20% in the first period and a tax of 40% in the second. What would be the impact of that policy on the individual's decisions?

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