Income, consumption now [S) sure-11-121 3. The figure above shows the consumption choice of a consumer over two periods. His initial endowment is (y, y), that is, an income y in both periods, which is depicted by point A. If possible, the consumer prefers to consume the same amount in both periods. The interest rate is r. Now assume that there has been a temporary shock such that the income in period 1 is reduced to y', while the period 2 income is expected to return to y. Assume that a credit- constrained consumer is not able to borrow at all. Based on this information, which of the following statements is correct? A. If the consumer is not credit-constrained, then he will consume c' in both periods such that c' = y - (c' - y')(1 + r) (income minus repayment in period 2). B. In the consumer is not credit constrained, then he will be able to borrow to consume the same amount as he would have done on both periods without the temporary shock. C. If the consumer is credit-constrained, then he will consume less in period 2 than he would have done without the temporary shock. D. If the consumer is not credit-constrained, then he will borrow y - c in period 1 in order to smooth out his consumption in the two periods. 4. The total of the components of GDP in the economy is equal to the . 2...... in the economy. Choose the correct answer. A. Real interest rate B. Aggregate demand C. Aggregate output D. Inflation