Consider a one good, two-period closed economy without government. The representative agent is endowed with 1 in the first period and 2 in the second period.

(i) Derive the optimal consumption and investment plans for the representative consumer and representative firm respectively. [4]

(ii) Extending the basic setup, assume now that there exists an opportunity to exchange intertemporal consumption, at a given market determined interest rate, , among individuals in the economy.

a. Derive the capital market line for this economy [6]

b. Explain the Fisher-Separation Theorem in this context and discuss what role money plays in this model.

This is all that is mentioned for the question.