1. Consumption Agents live for two periods and seek to maximise lifetime welfare, given by W = ((c)1- + B(c2)1-)/(1 -o) where c; is consumption in period i and B and o are parameters, with 0 0 . They are subject to the budget constraint at c/(1+r) = vit y1 -ti + (12 -tz)/(1+r) where v, is initial wealth, / is the interest rate, t, is a lump sum tax paid in period i and y; is income in period i. a. Solve for a, and c and explain how they respond to changes in the interest rate and incomes. Explain what $ and o represent and how they affect consumption. b. Explain and evaluate the idea of Ricardian Equivalence. Discuss its implications for fiscal policy. The Zero Lower Bound What is the zero lower bound in monetary policy? Explain how it constrains policymakers and how they might respond to it