Consider the two-period model of consumption-savings decisions with a perfect credit market. An intertemporal consumption-savings decision implies an economic trade-off between current and future consumption, where the interest rate is used to identify the present value of future consumption goods.

I have provided answers and all context necessary for A) and B), please use A and B to answer C and D accordingly, Thank you!

(a) Starting from the consumer's current-period and future-period budget constraints, derive the consumer's lifetime budget constraint.

L. a ) ys current income y's future income to current taxes +'s future taxes consumer's current-period budget constraint : C+S - current disposable Income Consumer's future-period budget constraint: c' = y'-t' + ( 1 + r)s Future disposable Income + c'-y' +t' = s plug into current period budget constraint C + S= V-+ Dad-y' t = y-1 It r rewritten as c . c' = y-try -+' lifetime budget constraint (we ) :. Lifetime Budget constraint I+r( consumption in future )bike 6 ) ( + +r ) we 6 consumer is a lender stope = - ( Its ) Y -+ consumer is a borrower A y- + we C (consumption today ) C , - C + we c'= - (1 + r) c + (1 +r) we Slope Y- intercept