1. (20 points) An employee has to choose between two contracts. Under contract A, she has gross incomes y and y' in the current and future periods, respectively, and has to pay taxes 75 and t' in the current and future periods, respectively. Under contract B, an employer offers the employee the option of shifting :1: units of income in the current year to the next year. That is, the option is to reduce income in the current year by x units and increase income in the next year by x units. Taxes are the same under both contracts. Assume that the net real interest rate on saving and borrowing equals T > O. (a) (10 points) Write down current and future budget constraints and the lifetime budget constraint under the two contracts. Which contract would the employee choose? (Hint: you should compare lifetime wealth under the two contracts.) (b) (10 points) Assume that preferences over current and future consumption are U (c, c') = min (c,/3 - c'), where 5 = 1. Find c0nsumpti0n in the current and future periods and saving under the two contracts. Compare consumption levels and saving under the two contracts