Consider two consumers, A and B. A and B both want perfect consumption smoothing (c = cf) and both have no current wealth. However, the two consumers...

1.Consider two consumers, A and B. A and B both want perfect consumption smoothing (c = cf) and both have no current wealth. However, the two consumers have different income streams. Person A’s current income, yA, = 100, and future income, yfA, = 121. Person B’s current income, yB, is 120, and future income, yfB, = is 99. The real interest rate is 10%.(a). Calculate the present value of lifetime resources (PVLR) for consumer A and consumer B, respectively. (b). Draw consumer A’s budget constraint. How does the budget constraint of consumer A compare to the budget constraint of consumer B? Explain.(c). Find consumer A’s optimal lifetime consumption plan, (cA, cfA). How does consumer B’s optimal lifetime consumption plan, (cB, cfB), compare to consumer A’s lifetime consumption plan? Explain.(d). Is consumer A a current saver or a current borrower? Explain. Is consumer B a current saver or a current borrower? Explain. (e). Draw a graph that illustrates how an increase in the interest rate (above 0.10) will affect the budget constraints of consumer A and consumer B. How does the budget constraint of consumer A compare to the budget constraint of consumer B? 2. Fred’s Frisbees is trying to determine how many Frisbee pressing machines to buy for its new factory. The real price of a new pressing machine is 7500 Frisbees. The depreciation rate on these Frisbee presses is equal to 10% per year. The expected future marginal product of these fabricating machines is given by the expression 3350 – 20K, measured in Frisbees. The real interest rate is 8% (.08).