Suppose that, by coincidence, the values of ; r; Y and Y 0 are such that it is optimal for the household to consume: C = Y and C 0 = Y 0 . 1. What will happen to C if interest rates increase? [A graph will be helpful. Make sure you draw it carefully, it's probably useful to make it large]. 2. Does the overall utility achieved by the household increase, decrease or stay the same? 3. Suppose this household was the only household in the economy. Suppose you arrive to this economy in period 1 and want to measure the wellbeing of their population using its current year's consumption (assuming you can measure it). You also know that interest rate will increase (as in part 1). How misleading would be to use current consumption to measure the effect of the increase the interest rate in the wellbeing of the household? Provide economic intuition.