Assume the representative consumer lives in two periods and his preferences can be described by the utility function

U(c,c)=c^1/3 +(c)^1/3,

where c is the current consumption, c is next period consumption, and = 0.95. Let's assume that the consumer can borrow or lend at the interest rate r = 10%. The consumer receives an income y = 100 in the current period and y = 110 in the next period. The government wants to spend G = 30 in the current period and G = 35 in the future period. The consumer pays a lump sum tax t in period 0 and t in period 0.

1. Write down the consumer's intertemporal budget constraint. [03 points]
2. If the government sets t = 50, what will be the consumer's estimate of the value of t? [04 points]

1. Is it optimal for the consumer to consume his disposable income in each period? [10 points]
2. Solve the consumer's problem by finding the optimal allocations c and c. [10 points]
3. Is the consumer a lender or a borrower? [03 points]
4. Assume the consumer has to choose between two different jobs. Job 1 offers him the in- come bundle (y1, y1 )=(100, 110) while job 2 offers (y2, y2 )=(110, 100). Which job will you recommend to the consumer? [10 points]