The utility function for each consumer is given by: U(c1, c2 ) = ln(c1)+(1)ln(c2 ) Write out the inter-temporal budget constraint for this consumer...

The utility function for each consumer is given by:

U(c1, c2 ) =α ln(c1)+(1−α)ln(c2 )

Write out the inter-temporal budget constraint for this consumer and explain briefly what it is. Then, using the above utility function, find an expression for present consumption in terms of y1, y2 and r.

Derive an expression to show under what conditions on present income would consumers be at the “no-lending, no-borrowing” point. Verify your answer by showing that c1 = y1 and c2 = y2 .