Polly pocket will live only for two periods. In the first period she will earn $50,000. In the second period she will retire and live on her savings. Her utility is u(c1,c2)= (c1+100)(c2+10), where c1 is what she consumes in period 1 and c2 is what she consumes in period 2, and the mrs is -(c2+10)/(c1+100). She can borrow and lend at the interest rate of 10%.

a. what is her intertemporal budget constraint and graph it, consumption in period 1 on the horizontal axis and consumption in period 2 on the vertical axis.

b. What is her optimal amount of consumption in period 1 and in period 2?

c. Suppose the interest rate decreases. Show the effect of this change to the budget constraint.