For question 2, 1. we need to find the optimal c0 and c1, depends on r. we need to do MRS c0, c1= 1+R . Assuming r is 0.05. to find the optimal c0, c1. I know that's not the right way.

2.Using MRS=1+R, so we write the equation as r= MRS-1 to find the equilibrium interest rates?

We need to calculate for consumer A and consumer B individually for question 2, 1 & 2?

I don't know how to solve it if I don't assume r=5%.

Thanks

ECON 303~ FINAL EXAM REVIEW.pdf 7 Adobe Acrobat Reader DC (32bit) File Edit View Sign Window Help Home Tools ' ECON 303... ' ECON 303... ' ECON 324... ECON 324... ECON 324... ECON 324... Zhang_401... Zhang_ 40... IsrGEEDQ ;/4 kQUGGDWW'E"? Elia ECON 303... x H' p Type hereto search Question II [20 points] Consider a twoperiod model, inhabited by two individuals. Anna and Bob (or as they like to be called, A, and B). A has the following preferences \"(601\" Cf) : 111(66') + 111(Ci'). While B has the following preferences uB(co,B of) = ln(c) + ln(cf). Consumer A receives an income YOA = 100 in period 0 and YIA = 121 in period 1. On the other side7 Consumer B receives an income YOB = 140 in period 0 and YIB = 110 in period 1. Assume the interest rate is r. A and B currently live happily as they do not have to pay taxes, and the government is not interfering with their spending habits. 1. Compute the optimal consumption (00.01) for each individual. [10 points] Hint: Your answer should depend on r. 2. Find the equilibrium interest rate that clears the credit market. [10 points] Hint: The credit market is cleared when the sum of the consumers savings in period 0 is zero. , X (D Q Sign In (,9. '2 3