C2 1+R This equation is called the intertemporal budget constraint. Observe that on the left-hand side, we have the present discounted value of consumption. The intertemporal budget constraint states that the present discounted value of consumption (i.e., all your spending) must be equal to your wealth. 01+ =l/V. Question 4.2 Now consider the utility of the household. Let us assume that the utility takes the form U :1n01 4-31an where 3 is the time preference coefcient. Use the intertemporal budget constraint to substitute out 01 from the utility U. Then write down the rst-order condition for maximization of U with respect to 02. Notice that the rst-order condition contains the term W 1%}? which is equal to Cl. Substitute Cl back and show that you can write the rst-order condition as This equation is called the consumption Euler equation