Hi, the correct answer is given in red which helps you to explain . please explain the formula step by step ,

Q8. r in a growing economy. According to the theory presented In the textbook. the re should be a higher real return on loans In a growl ng economy. Explain this result. If an economy has 1000 people in it and they produce 100 000 cookies this year and 150 000 cookies next year. then average cookie consumption mu st be 100 per capita this year and 150 per capita next year. Individuals might wish that they could eat 125 cookies per year. but this is not possible for the average consumer. How do we ensure that individual consumption decisions are compatible with the amount produced each year? Consider the Euler equation: u'(C1)/u'(C2) = (1 + r)/(1 + p). Ifthe economy produced 125 000 cookies per year. then consumption would be constant. the ratio to the left ofthe equals sign would be equal to one. and so we would have 1* = ,0. But if production is higher next year. then consumption must be higher next year. meaning n'imjgmml utility will be lower next year. so the ratio on the left will be greater than one. This requires 1* > ,0 so that consumers are "convinced" not to consume more than is available