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G EN W O PC APC PC CC O SE S EC G M O M CM Z . G G | southeast-2.amazonaws.com/5b274eb116928/1368939?response-content-disposition=inline%38%20f 2. Consumption-Savings Decision: The Household's decision problem Is: max C1,C2,S s.t. C1 + s = ( 1; so utility is increasing and concave in consumption. (a) Use the method of substitution to solve for optimal savings s". (b) Use the method of the Lagrangian to solve for optimal savings s'. (c) Find the solutions for optimal consumption in periods 1 and 2, ie. cj and c2. (d) For y = 1 look at how consumption in period 1 depends on the interest rate r (you can just copy the expression for ci from the lecture slides). Describe how monetary stimulus (a decrease in the interest rate) works to increase demand (consumption) today. (Whether you do this by taking derivatives of the optimal choices with respect to the interest rate, or just by describing it's effect, is up to you.) e 9 hp