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Consider a consumer who receives current income, yt, and future income, yt+1, and pays taxes tt and tt+1 in the current and future periods, respectively.
Consider a consumer who receives current income, yt, and future income, yt+1, and pays taxes tt and tt+1 in the current and future periods, respectively. This consumer preferences are given by ct= ct+1, where ct and ct+1 are consumption in current and future periods respectively. The consumer can borrow or lend in the credit market at the interest rate r. The current period budget constraint is ct + s = yt tt, while the future period budget constraint is given by ct+1=yt+1 tt+1 + (1 + r)s, with s the saving rate.
1. (1.0 point) Derive the consumers lifetime budget constraint. Explain its meaning. graph
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