Solving for budget constraints and first order conditions:

Consider a variant of the two-period model of consumption and saving from the lecture slides. Individuals in the economy live for two periods. Earnings (exogenous) are y in pe riod 1 and zero in period 2. In period 1, individuals can consume all of y or save some of it in one (or both) of two accounts: a retirement savings account P that features a tax or subsidy 1p 6 (1, 1), or a taxable account 5. Note that since 1]) may be a tax or subsidy (1p 76 0). Assume that: (i) the real interest rate is equal to r = 0, (ii) the exponential discount factor is 0 and 0