Suppose a person's life is divided into two main blocks, periods 1 and 2. The consumer does not desire to perfectly smooth consumption over the two periods. In particular, preferences are such thatc2= 0.5c1. Income in the two periods is equal toy1= 500 andy2= 1000, and income taxes are proportional1= 50% and2= 50%. The real interest rate isr= 0%.

(b) Find the optimal consumption in each period (c1,c2) and the amount of saving/borrowing. Comment on your findings.