(b) Now assume that o = 1 and a = 1. Solve for {ct, Kt+1}t=0. Hint: Guess that ct and at = kt+1 are a constant fraction of output Ak, and verify. 3. Consider a two-period endowment economy with date-0 trading. The representative consumer seeks to maximize log (c1) + Blog (c2) , subject to the intertemporal budget constraint Pic1 + P2c2 = PIw1 + p2w2, where ct and wt are consumption and endowment in period t, respectively, and pt is the price of consumption good in period t. Endowment is always positive: wt > 0. Note: Let us ignore the non-negativity constraint on consumption. (a) State the competitive equilibrium of this economy. (b) Solve for the competitive equilibrium. (c) Draw the intertemporal budget constraint and the indifference curve on (c1, C2) space. Mark the competitive equilibrium. 1*OF/104