Question 4.3 Argue that when consumption 0'2 is kept xed (for reasons outside of this model), then consumption 0'1 in period 1 is a decreasing function of the interest rate. I Observe that in Question 4.3, we proceeded differently than in Question 4.5 of the Calculus exercises. There, we found a full solution for 01 and 0'2 and actually inferred that 01 = LW, which is independent of the interest rate. The reason was that when interest 1+!3 rate changed, consumption 02 did not stay the same and actually increased. Why we assume here that 02 is assumed to be kept xed will be explained in class. What you should take away is that the consumption Euler equation in this case implies (asuming that Cg is xed) that household demand for consumption is a decreasing function of the real interest rate