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Can you please find the solutions for all 6 questions? z Two-Period Model Cookie Monster lives for two periods (period 0 and 1). In what

Can you please find the solutions for all 6 questions?

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z Two-Period Model Cookie Monster lives for two periods (period 0 and 1). In what follows, a subscript denotes period. 1. \"k H Explain why 51, his savings in period 1, are not positive. 2. 'k a Suppose that Cookie Monster's prefer ences are represented by R (Co: cl) = 111(Co) + g 111(51): and his income is (yo, Eh} = (16, 20), of which the government takes away (to, :1) = (6, 0). Due to his reckless eating habit, no one wants to lend him. As a result, in addition to his usual in- tertemporal budget constraint, he also faces credit constraint so 2 0. The interest rate is given by r = 1. Write his utility maximization problem. 3. 'k H With Co on the horizontal axis and c1 on the vertical axis, show on a graph his budget constraint in item 2. 4. 'k H Compute the optimal consumption bun- dle (co, c1) and 50 when he did not face the credit constraint. 5. it it it Solution to item 2 when faced with the credit constraint, is (c0, c1) = (10, 20). How much is the smallest tax cut in period 0 that would make his credit constraint non-binding (non-existent)? Explain. 6. id: H Does item 5 invalidate Ricardian Equiv- alence theorem? Explain

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