Only answer D.

value of 5 points. Recall the intertemporal budget constraint from week 02. Consider an individual who lives only two periods. Let c1 > 0 be consumption in period 1 and c2 > 0 be consumption in period 2. Therefore, (C1, C2) is the (intertemporal) consumption bundle. Let pi be the price of the good in period 1. In period 2, the price is higher due to inflation. Let 7 E (0, 1) be the rate of inflation. For t - 1, 2, her (per-period) income is It > 0. In addition to receiving income, she may save or borrow in period 1. Let s E (-12/ (1 + i), I ) be the amount that is saved or borrowed in period 1. (a) Using standard indifference curves, illustrate graphically your solution, i.e., (ci, cz). (1 point) (b) Show graphically the effect of an increase in the rate of inflation on (c), c;)? Is the effect ambiguous? (1 point) (c) Show graphically the effect of an increase in the nominal interest rate on (ci, cz)? Is the effect ambiguous? (1 point) (d) Suppose that u (c1, C2) = VC1 + VC2. Find (ci, c2). (2 points)