7

Consider a household who lives for two periods. Suppose the instantaneous utility function is cl-o u(c, !) = 1_ty log(1 -(), o> 0,4>0. The household maximizes u(c1, (1) + Bu(2, 62) subject to the lifetime budget con- straint, C1 + c2/ (1 + r) = will + wal2/(1 + r). Assume 0