1.Consider a consumer who has the following inter-temporal utility function: U =

1.Consider a consumer who has the
following inter-temporal utility function: U = C1C2+ C22
with C1 and C2 being his desired values of consumption in
periods 1 and 2 respectively. Assume
his income in the first period is m1 = $100 and in the second period
it is m2 = $150. The market rate of interest is 10 percent.a.Calculate the value of his
consumption in the two periods. Is he a borrower or a lender in the first
period?b.If he is a borrower in the first
period calculate his interest payment in the next period. If he is a lender calculate
his interest receipts in the next period.c.What is his rate of time preference?d.Draw a diagram showing his optimal
choice of C1 and C2. Label the diagram according to your
results obtained in a. Should the
indifference curve be convex to origin? Why?