Write the tax-adjusted user cost of capital as a function of the real interest rate r. Also write the desired future capital stock and desired invest ment as functions of r.

a. Find the consumer’s PVLR.

b. Write the equation for the consumer’s budget con straint (using the given numerical values) and graph the budget line.

Suppose that the consumer’s goal is to smooth consumption completely. That is, he wants to have the same level of consumption in both the current and the future period.

c. How much will he save and consume in the cur rent period?

d. How will his current saving and consumption be affected by an increase of 11 in current income?

e. How will his current saving and consumption be affected by an increase of 11 in future income?

f.

How will his current saving and consumption be affected by an increase of 11 in his initial wealth?