Week 7 Problem Set = = Question 1: Consider a consumer with income of y 60 and y' 75 who pays taxes of t 15 and 45. The interest rate is 7% or r = 0.07. The consumer's preferences are given by: U(c, c') = cla Part A: Determine the consumer's lifetime wealth. Part B: Calculate the optimal amount of consumption in the current and future period as well as the consumer's savings. Is the consumer a borrower or a lender? Part C: Draw a graph showing the consumer's endowment point, budget constraint, optimal choice, and the indifference curve of the optimal choice. Part D: Assume now that the interest rate increases to 15% or p = 0.15. Draw a new graph with the endowment point, the old budget constraint, the new budget constraint, the indifference curve of both the old and new optimal consumption bundles. Label clearly the substitution and income effects. Week 7 Problem Set = = Question 1: Consider a consumer with income of y 60 and y' 75 who pays taxes of t 15 and 45. The interest rate is 7% or r = 0.07. The consumer's preferences are given by: U(c, c') = cla Part A: Determine the consumer's lifetime wealth. Part B: Calculate the optimal amount of consumption in the current and future period as well as the consumer's savings. Is the consumer a borrower or a lender? Part C: Draw a graph showing the consumer's endowment point, budget constraint, optimal choice, and the indifference curve of the optimal choice. Part D: Assume now that the interest rate increases to 15% or p = 0.15. Draw a new graph with the endowment point, the old budget constraint, the new budget constraint, the indifference curve of both the old and new optimal consumption bundles. Label clearly the substitution and income effects