Question: 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

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.

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