Consider a two period economy populated by identical consumers that have the same income. All consurners' preferences over on and c1 are described by the same utility func- tion, 1 3111031} \"(621581) = Mon) + There is also a government whose objective is to spend Go in period 0 and 01 in period 1. This government collects lump-sum taxes each period and can issue bonds in period 0 [39). Each bond pays interest rate {1'} and must be fully repaid in period 1. Consumers save and borrow with the same interest rate r of the government. Consumers' optimal decision, given 7'. imply that, . _3 _ QUET1) cum-Em n1+4 (1+?) Finally, assume that Ya = 100 and 3'] = 40. For questions {a}, (b), (c), (d) only, suppose that Cc. = 10. c1 = 5 and r = 40%: (a) Dene the competitive equilibrium of this economy. {13) Show that, in this case. the value of one unit of period 0 consumption in terms of period 1 consumption is worth 1.5 units. (c) Is the consumer choosing his optimal consumption bundle with the above values for ca, c; and r"? Justify your answer. {(1) What should the consumer do in this case? Illustrate with a graph (label it well). For the next questions only, suppose that G3 = 40, G1 = 16, and that the government borrows (has a debt) of 5 in period 0: (e) Calculate taxes in period 0 {To} and taxes in period 1 [T1] when r = 20%. {f) Calculate period Cl private saving and national saving when r = 20%. (g) What can you conclude about the market from your calculations in part (I)? (h) Why is this economy not in equilibrium when r=25%? Should 7' increase or decrease in this case? Explain