Suppose that an individual lives for two periods and her utility in each period is given by u(ct , lt ) = 12 ln(ct ) + 12 ln(lt ). The individual (as per usual) has 16 hours of time to devote to leisure or work in each period. The individual gets a wage of $10 in period 1. The interest rate in this economy is 0%. There is no non-labour income or borrowing constraints.

(a) What would be the hours worked by the individual in periods 1 and 2 the individual gets a $10 raise in period 2 (and so period 2 wage becomes $20) and she anticipates that raise?

(a) What would be the hours worked by the individual in periods 1 and 2 the individual gets a $10 raise in period 2 and does not anticipate that raise (she expects to only earn $10/hour)?