Where r is the interest rate, c is consumption y is the level of income and that consumption over time is discounted at a rate of sigma.

a) The consumer faces the problem of maximizing the utility function given by the following equation and subject to the constraint given.

Subject to the constraint that

Where r is the interest rate, c is consumption y is the level of income and that consumption over time is discounted at a rate of sigma.

ü Solve the consumer optimization problem and discuss the implications from the first order conditions