The individual has high income when young and low income when old and retired. Suppose he saves through the purchase of housing. The amount of savings, s, is the amount he puts into a home. The individual expects their home to appreciate by 20% (interest rate is 20%). Solve for c1, c2, and s.

3. Wealth, Housing Bubbles, and the Great Recession The Great Recession started in the Housing Market. For many households, their main source of savings and wealth is their home. So when they are old and retire, they depend on the wealth they have accumulated in their home. In this problem we will use the Fisher 2-Period model to see how a drop in housing values can affect the broader economy, as well as examine how a housing market shock could have both short-run and long-run negative effects on the economy. Part 1. Suppose an individual follows the Fisher 2-period model with the following utility function and incomes U (C1, C2) = 0.5In(c1) + 0.5ln(c2) H = 1000 12 = 200 The individual also faces a borrowing constraint, b - -100