You live 3 periods. You are born with nothing and you must die with nothing. In period 1 you have labor income of Inc.1 (this is w/P*L1) In period 2 you have labor income of Inc.2 (this is w/P*L2) In period 3 you have labor income of Inc.3 (this is w/P*L3) In each period you may consume (C1 and C2 and C3) as well as buy or sell bonds (B1 B2- where Bt is the Bond holdings in period t). Assume Utility of consumption = In(C) So a person's total utility over two periods is U = In(C1) + In(C2) Recall the TWO period Budget constraint is C1 + 2/(1+i) = Incl + Inc2/(1+i) Review the notes where I derived the utility Max equation for C1 and C2. If i = 1% and Inc1 = 50 and Inc2 = 100. How much is C1 & C2? If i rises to 5% what are the new C1 & C2? If then one got a tax rebate in period 1 raising Inc1 to 75 what are new C1 & C2 assuming i is still 5%. You live 3 periods. You are born with nothing and you must die with nothing. In period 1 you have labor income of Inc.1 (this is w/P*L1) In period 2 you have labor income of Inc.2 (this is w/P*L2) In period 3 you have labor income of Inc.3 (this is w/P*L3) In each period you may consume (C1 and C2 and C3) as well as buy or sell bonds (B1 B2- where Bt is the Bond holdings in period t). Assume Utility of consumption = In(C) So a person's total utility over two periods is U = In(C1) + In(C2) Recall the TWO period Budget constraint is C1 + 2/(1+i) = Incl + Inc2/(1+i) Review the notes where I derived the utility Max equation for C1 and C2. If i = 1% and Inc1 = 50 and Inc2 = 100. How much is C1 & C2? If i rises to 5% what are the new C1 & C2? If then one got a tax rebate in period 1 raising Inc1 to 75 what are new C1 & C2 assuming i is still 5%