This question was posted with no soutions and I am trying to understand how to solve it.

Question I (48 points) Consider a two period model, with a representative agent and a government. The agent has the following utility mm = Wage The government in this economy can lend or borrow by issuing bonds.lt decides that it wants to lend two units of the consumption period during the rst period as a way to save for future expenditures. Assume that total economic activity in the economy in period one is equal to 20, and that everyone expects this to be the case to be maintained for the future. Assume that the government plans on spending CD = 3 and G] = 4. 1. Dene the competitive equilibrium in this economy {4 points) 2. What is this consumer willing to give up to get an extra unit of co? What is then the value of 1 unit of c1 optimally? (3 points) 3. How much taxes is the government collecting in both periods1 if the interest rate is at 10%? (6 points) 4. Assuming [32 = 16, what is the value of c] if the interest rate is :r' = 0.1. What is the value of private savings? (10 points) . What can you conclude should happen to the interest rate? (2 points) . Find the function and the value of the equilibrium interest rate, using the conditions you mentioned in (1). (12 points) . What is the new value for ca? {3 points) . Congratulations, you are now in charge of the government! You are in charge of undertaking government policy, for the benet of the people. Someone comes up to you and tells you that the government should be spending more overall. He argues that this would make us all better off, because even if the government increases taxes, it is spending it on the consumers, so it all balances out. Do you agree? (5points) . Depending on your answer, how would you go about nancing an increase in expen diture without affecting the consumer's consumption? (3 points)