Dan has a utility function U(X1,X2) = (X1^)(X2^) which represents his preferences for future and current consumption. His income in period 1 (M1) is $7,000 and period 2 (M2) is $12,000. Assume there is no inflation from one period to the next.

a)What will be Dan's consumption in each period given an interest rate 8%?

b)How does Dan's consumption change if the interest rate drops to 4%?

c)Is Dan a borrower or a lender?

d)Draw a graph with both budget lines and show whether Dan is a borrower or a lender. Label the graph properly.