We assume a household that lives for two periods. The household receives income as endowment in the first period, 311, and in the second period, 312. The household optimally decides how much to consume in the first period, c1, how much to save in the first period, 5, and how much to consume in the second period, (:2. The household can borrow and lend freely at the real interest rate, r. The household exits the world without debt. The intertemporal budget constraint is given by: 02 372 C + = + 1 1+1\" 3'1 1+1", while it is also assumed that the household follows a perfectly- smoothed (optimal) consumption plan