1. Suppose interest rates are zero and the consumer's utility function can be described by u(c1, c2). y1=75, y2=125. Find the optimal consumption in each period. What financial transactions does the consumer make?
2. Suppose the consumer's utility function is as c1c2 where c2 is to the 0.6 power. If y1=2000 and y2=1296, and the interest rate is 8%, what are the optimal levels of cosumption in periods 1 and 2?
3. Show diagrammatically how an individual earning income in period 1 can provide for consumption in period 2.