Intertemporal choice

1. Intertemporal choice A person lives in two periods. The first period she works and in the next period she is retired. The income in (her salary) is W1 > 0 and the salary for when she is retired for the second period is wz She has the utility function u = lochlj + [310g (02) Where Cl is consumption for the first period and 62 is the consumption for the second period. We assume that 3 > 0 1. How do you interpret [3' and what is fair to assume about ,8? Besides stated above. Now let the person be capable of saving up and borrow for the interest rate 1' and normalize the prices in the first period to 1 and the prices |=n the second period to p Set the consumers intertemporal budget condition. Draw the consumer's budget condition in a (x, y) chart and interpret the slope of the curve. Solve for the consumer's optimal savings. 91:59!" the government is considering increasing the national pension W2. How does the savings depend on w;? Interpret your result. 6. The government is considering taxing the return on private pension savings, 1:. Calculate the savings as an expression of exogenous parameters and the tax on private savings. 7. Does the savings depend positively or negatively on 1