6. A consumer who lives for two periods has a standard Cobb-Douglas utility func- tion: ule1, c2) = cfc, where c, = consumption in period t and a+ B = 1. Her income in period one is I1 = 500 and I2 =...

Extracted text: 6. A consumer who lives for two periods has a standard Cobb-Douglas utility func- tion: ule1, c2) = cfc, where c, = consumption in period t and a+ B = 1. Her income in period one is I1 = 500 and I2 = 400, and she can lend or borrow at interest rate r = 0.2. (a) Find the optimal consumption demand. (b) What values of a, if any, makes the consumer a borrower? Interpret this result. (c) Suppose now that a = but that r is no longer 0.2. What values of r, if any, makes the consumer a borrower? Interpret this result.