Mr O B Kandle Will Live for Only Two Periods

Multiple Choice

Mr. O. B. Kandle will live for only two periods. In the first period he will earn $100,000. In the second period he will retire and live on his savings. Mr. Kandle has a Cobb-Douglas utility function U(c₁, c₂) = c²₁c₂, where c₁ is his period 1 consumption and c₂ is his period 2 consumption. The real interest rate is r.

A) If the interest rate rises, Mr. Kandle will save more.
B) If the interest rises, Mr. Kandle will save less.
C) He will consume the same amount in each period.
D) A change in the interest rate won't affect his saving.
E) None of the above.