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2. Due to the high inflation environment, Martha sees herself in a significant financial distress due to the rapid rise in the mortgage rate.

 

2. Due to the high inflation environment, Martha sees herself in a significant financial distress due to the rapid rise in the mortgage rate. She now must save as much money as she can in order not to fall into foreclosure of her house. Martha has the following utility function, U (x, xa), where (0,1) and a minimum standard of living, u > 0. (a) [20 points] Help Martha solve the cost-minimization problem and derive the Hicksian demand functions and the expenditure function. (b) [10 points] Derive Martha's indirect utility function.

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