Peregrine Pickle consumes (c1, c2) and earns (m1,m2) in periods 1 and 2 respectively. Suppose the interest rate is r.
(a) Write down Peregrine’s inter-temporal budget constraint in present value terms.
(b) If Peregrine does not consume anything in period 1, what is the most he can consume in period 2?________. This is the (future value, present value) of his endowment. _________.
(c) If Peregrine does not consume anything in period 2, what is the most he can consume in period 1? ______ This is the (future value, present value) of his endowment. _______. What is the slope of Peregrine’s budget line?_______.