In the current period, a consumer gets an endowmenty and pays lump-sum tax t. In the future period, the consumer is endowed with y' and faces the lump-sum tax of t. The consumer can borrow at rate r2 and lend at the rate r1, where r1
In the current period, a consumer gets an endowmenty and pays lump-sum tax t. In the future period, the consumer is endowed with y' and faces the lump-sum tax of t. The consumer can borrow at rate r2 and lend at the rate r1, where r1
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Please answer a,b
Transcribed Image Text:In the current period, a consumer gets an endowment y and pays lump-sum tax t. In
the future period, the consumer is endowed with y' and faces the lump-sum tax of t.
The consumer can borrow at rate r2 and lend at the rate r1, where r1<r2.
A) Derive the consumer's lifetime budget constraint.
B) Show the consumer's lifetime budget constraint and indifference curve in a
diagram (illustrate both type of consumers, borrowers and lenders).
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