Charlie has an income of f100,000 each in both period 1 and period 2.His utility function isgiven by U(C1,2C2)=c5,where C1 and c2 denote the amount he spendsonconsumption in period 1 and

period 2 respectively.(a)Write an equation that describes Charlie's budget constraint when the interest rate forborrowing and lending is 2%and there is no inflation.If Charlie chooses the optimalamount of borrowing or saving,how much will he consume in each period?Show thebudget constraint and indifference curve passing through his consumption choicediagrammatically with C1 on the horizontal axis.(b)Calculate and explain Charlie's optimal consumption choice in each period if the interest(15%)rate increases to 20%and show this on your diagram.(c)Calculate the interest rate that would result in Charlie choosing the same level of(20%)consumption in both periods.Provide an intuition for your answer.(15%)

Fig: 1