II. An investor has 10 units of goods at the start of date 1 . At date 1 there are two sorts of assets: government bonds and money. The date-t nominal price of goods is Pt>0 (i.e., one unit of goods is worth of Pt dollars), t=1,2; so, in particular, the investor can exchange one unit of goods for P1 dollars at date 1 and use the P1 dollars to buy P1/P2 units of goods at date 2 . The bonds are real bonds: one unit of government bonds claims one unit of goods at date 2 ; these bonds are sold at the (real) price pb>0 at date 1 (i.e., one unit of bonds is worth of pb units of the date-1 good). From consuming ct at date t,t=1,2, the investor's utility is U(c1,c2)=c1+c2. Let m and b be the units of money and government bonds the investor carries to date 2 , respectively. 1. Suppose P1=1.1,P2=1.0 and 1/pb=1.1. Find all optimal solutions of (m,b). 2. Suppose P1=1.1,P2=1.0 and 1/pb=1.0. Find all optimal solutions of (m,b). 3. Suppose P1=1.0,P2=1.1 and 1/pb=1.1. Find all optimal solutions of (m,b). 4. Suppose P1=1.0,P2=1.1 and 1/pb=1.1 and you find the investor chooses m=1 and b=4. How can you rationalize the investor's choice