Consider the general period-t nominal budget constraint from the dynamic-consumption savings model, P_tc_t + A_t = (1 + i)A_t1 + Y_t :

(a) Derive an LBC for a three-period model, i.e. for t = 1, 2, 3, assuming a terminal condition of A₃ = 0 and an initial condition of A₀ = 0.

(b) In the two-period model, we typically assume a terminal condition of A₂ = 0. Explain why for the three-period model the terminal condition is instead A₃ = 0.

(c) Interpret the LBC. Does the interpretation differ from the two-period model?