Intertemporal choice.

[Nikkita]

Please solve the following:

 Mr. O. B. Kandle  has a utility function c1c2 where
c1 is his consumption in period 1 and c2 is his consumption in period 2.
He will have no income in period 2. If he had an income of 30,000 in
period 1 and the interest rate increased from 10% to 12%,
(a) his savings would increase by 2% and his consumption in period 2
would also increase.
(b) his savings would not change, but his consumption in period 2 would
increase by 300.
(c) his consumption in both periods would increase.
(d) his consumption in both periods would decrease.
(e) his consumption in period 1 would decrease by 12% and his consump-
tion in period 2 would also decrease.

[duck]

Hi Nikita. :)

Maximize c1c2
such that c1 + c2/(1+r) = 30000

If you solve the above optimization problem. You'll get optimal bundle as (c1,c2) = (15000, 15000(1+r))
and savings (s) = 30000 - c1

Clearly, if r increases there would be no change in period1 consumption (c1) and savings (s) but consumption in period2 (c2) will increase by [15000(change in r)] .
In this case, it is 15000*(1.12-1.1) = 300

[Nikkita]

Thnx:)