8. (Appendix 4.A) A consumer has initial real wealth of 20, current real income of 90, and future real income of 110. The real interest rate is 10% per period.

a. Find the consumer’s PVLR.

b. Write the equation for the consumer’s budget constraint (using the given numerical values) and graph the budget line. Suppose that the consumer’s goal is to smooth consumption completely. That is, he wants to have the same level of consumption in both the current and the future period.

c. How much will he save and consume in the current period?

d. How will his current saving and consumption be affected by an increase of 11 in current income?

e. How will his current saving and consumption be affected by an increase of 11 in future income?

f. How will his current saving and consumption be affected by an increase of 11 in his initial wealth?