A household has a two -period planning horizon where consumption in the two periods are bounded by the intertemporal budget constraint, c1 + c2 /(1

A household has a two -period planning horizon where consumption in the two periods  are bounded by the intertemporal budget constraint, c1 + c2 /(1 +r) = y1  + y2 /(1 +r)

Suppose that  y 1  >  y 2  by a large margin and that the  household fa ces a liquidity constraint  with  which  c t ≤ y t  for  t  =1,2.  Now, suppose that  y 1  increases by a given amount  d y and  that  y 2  decreases by the amount  dy /(1+r). What is the MPC in period 1? Explain

 
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