Question: 1. Explain the analogy between the intertemporal optimum of the consumer (choice between current consumption C0and future consumption C1) and the optimum of the consumer at a moment of time (choice between consumption of commodity X and commodityY).
2. Which is correct, and explain:
a. The annual rate of interest is the ratio P0/P1,the price of a current consumption claim divided by the price of a consumption claim dated one year in the future.
b. The annual rate of interest is the premium on the value of current relative to 1-year future claims, as given by the expression (P0/P1)-1.