Question: 5. Matt has the intertemporal utility function U = cyc, where ci and co are units of consumption in period 1 and 2 respectively. Let

 5. Matt has the intertemporal utility function U = cyc, where

5. Matt has the intertemporal utility function U = cyc, where ci and co are units of consumption in period 1 and 2 respectively. Let p, = 1 and p2 = p1(1+1). Mall's income is my in period 1 and ma in period 2. Matt can borrow or lend between periods 1 and 2 at the interest rate r. a) Write down Matt's intertemporal budget constraint with c as a function of cr, m1, m2, IT and r. b) Draw Matt's intertemporal budget constraint with c, on the x-axis and c2 on the y-axis. c) Find c1 and c2 as a function of my, mz, I and r. d) If m1=0. ma=110, 11=0 and r=0.1, what are c1 and cz? e) If it increases to 0.1, what are c1 and c2? Does Matt save or borrow more, compared to part d)

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