Consider a two-period endowment economy with two consumers i E {1,2} who Wish to maximise their utility, Hikes?) = 111(Ci) + )3 111(4) subject to the budget constraints ll Cid-35 yt c: = yit+(1+r)s,- Where 0,- and c2 are the current and future consumption, and s,- is the amount of savings, for i E {1, 2} Each consumer receives exogenous income y, and y: and pays taxes t and t' in each period. The interest rate is given by r. There is a government that needs to spend G and GP respectively in the current and future period. The government can nance its expenses with tax or debt, that is, the government's budget constraint are given by G T+B G'+(1+r)B = T' where T = 2t and T' = 2t' (since there are two people in this simple economy). 2. (5 points) Suppose that t = t' = G = G' = 0, y1 = y'i = y; = 95, and 31 > 1132. Which consumer consumes more in the rst period? What about in the second period? Provide an intuition for your answer (no algebra is necessary). 3' (5 paints) Suppose that t = if = G = Gr = 0:31: 182