3. Mary is planning consumption over a two-year period. She maximizes utility by setting MRS=1+r.She earns $60,000 this year and will earn $100,000 next year. The marginal rate of substitution (MRS) of MRS=1.2C1\C0.The interest rate is 3%.

3a. Write down the two-period budget constraint in terms of C0and C1(the two-period budget constraint must only have numbers, C0and C1).

3b. Calculate how much is consumed in the first year (C0).

3c. Calculate savings and explain your answer.Show how to use savings and year 2 earnings to determine his year two consumption (C1).