Question: Intertemporal budget constraint.Utility = min(C 1 , C 2 ) Budget line 1:Y 1 = $800.Y 2 = $1,300.The interest rate is 5 percent, both

  1. Intertemporal budget constraint.Utility = min(C1, C2)
  2. Budget line 1:Y1= $800.Y2= $1,300.The interest rate is 5 percent, both for borrowing and saving.

Draw the budget line, with solved numbers.Solve the optimal consumption levels to choose in time 1 and time 2.Draw the indifference curve.

  1. Budget line 2:The interest rate for borrowing and saving has increased to 15 percent.Solve the new optimal consumption levels to choose.Draw the indifference curve.

C.Draw the auxiliary budget line.Include the point S.Draw the indifference curve.

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