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1. (6 points each) Consider our basic two-period model of consumption / saving decisions, with household lifetime utility given by bl = u(c) + 1911(6) The household earns exogenous income 3; in the rst period and yI in the second period, and can borrow and save at the real interest rate 1*". Savings/ borrowing is denoted by 3. Assume that there are no taxes. (a) Obtain the intertemporal budget constraint. (b) Draw the diagram that shows how the optimal c and c' are determined. Be sure to label the diagram thoroughly. (0) Mathematically, set up the optimization problem faced by households. (d) Derive the Euler Equation. Describe what it is