Assume a two period business cycle model as we studied in class. In particular, let the consumer's utility function be given by:

gl2)

And the firm's production function:

Set parameter values as

a. Solve for the equilibrium allocation and prices given the parameters above.

b. How does the equilibrium change if TFP in period 1 increases to 2 (keeping TFP equal to 1 in periode 2)?

c. How does the equilibrium change if TFP in period 2 increases to 2 (keeping TFP equal to 1 in periode 1)?

d. How does the equilibrium change if the discount factor \beta falls to 0.9?