1. In the standard two-period model in Chapter 9, suppose the governemnt has to collectRin present discounted values through tax. However, the lump-sum tax is not available and the revenue can be collected either through(i)taxing consumption in both periods at ratec[so the consumption goods cost(1 +c)to the consumer in each period], or(ii)taxing saving/borrowing at rates[so the return to saving is(1s)(1+r)and the rate of repayment of loans is(1+s)(1+r)].

1. (a)Draw the lifetime budget constraint under(i). Clearly label the axises, the coordinates of the intercepts, the endowment point, and the kinks [if there is any].
2. (b)Draw the lifetime budget constraint under(ii). Clearly label the axises, the coordinates of the intercepts, the endowment point, and the kinks [if there is any].
3. (c)Redo(a)and(b)and super-impose the indifference map. Which policy makes the representative consumer better off? Hint: refer to the section of distorting tax in Chapter 5

(d) Explain your intuition in(c).