Consider a model with two periods, each with one composite consumption good. Prices are the stable and normalized to 1. Suppose a consumer is endowed with income 20 in the first period and 60 in the second period. The consumer receives a 10% interest rate on savings and is subject to a 20% interest rate on borrowing. Regulations prohibit the consumer from borrowing more than 20. 

(a) Find this consumer's budget constraint. 

(b) Carefully graph the budget set. Label all intercepts.

Answer rating: 100% (QA)

Solution many In financial terms a budget restriction refers to all of the combinations of labo... View the full answer