Question: Suppose a person's life is divided into two main blocks, periods 1 and 2. The consumer does not desire to perfectly smooth consumption over the

Suppose a person's life is divided into two main blocks, periods 1 and 2. The consumer does not desire to perfectly smooth consumption over the two periods. In particular, preferences are such thatc2= 0.5c1. Income in the two periods is equal toy1= 500 andy2= 1000, and income taxes are proportional1= 50% and2= 50%. The real interest rate isr= 0%.

(b) Find the optimal consumption in each period (c1,c2) and the amount of saving/borrowing. Comment on your findings.

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=+ a. A change in consumer preferences increases the saving rate.

=+ c. Better birth-control methods reduce the rate of population growth.

=+ d. A one-time, permanent improvement in technology increases the amount of output that can be produced from any given amount of capital and labor.