Question: Smith lives in a world with two time periods. His income in each period, which he receives at the beginning of each period, is $210.

Smith lives in a world with two time periods. His income in each period, which he receives at the beginning of each period, is $210. If the interest rate, ex-pressed as a fraction, is 0.05 per time period, what is the present value of his lifetime income? Draw his inter-temporal budget constraint. On the same axes, draw Smith’s inter-temporal budget constraint when r = 0.20.

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