Consider the two-period model of consumption and saving that we described in class. Consider the following interpretation of the model. The first period corresponds to the working period of life, and the second period corresponds to the retirement period of life. Consistent with this, assume that income in the first period is Y1 dollars, and that income in the second period is 0. Assume that the interest rate is R (R > 0), and the price of consumption goods is P for both periods. As in class, denote consumption in the first period by C1, consumption in the second period by C2, and the savings in the first period by S1.

(a) Write down the present-value budget constraint.

(b) Should this individual be a saver or a borrower in the first period? Briefly explain your answer.

(c) Suppose that the government institutes a Social Security Program. The program requires this individual to pay b dollars into the system during their first period. In the second period, the programs pays the individual the amount b dollars. Write down the individual's present- value budget constraint after the Social Security program starts.

(d) How will this Social Security Program affect the consumption choices in both periods of the individual (C1 and C2)? Briefly explain your answer. (Remember, R > 0.)