Flexible Felix views present and future consumption as perfect substitutes. He does, however, discount future consumption by a bit to reflect the uncertainties of his life. His utility function is therefore given by

U (C0, C1) = C0 + C1 / (1 + δ)

Where δ (which is a small positive number) is the ''discount rate'' he applies to C1.

a. Graph Felix's indifference curve map.

b. Show that if r (the real interest rate) exceeds d, then C0 = 0.

c. Show that if r < δ, then C1 = 0.

d. What do you conclude about the relationship between a person's saving behavior and his or her ''impatience''?