Explain, using a two-period indifference curve framework (with income arising in both periods, namely, present and future), how an

individual may respond to a decrease in the interest rate by decreasing or increasing savings. Please include appropriate references to the

substitution effect, the income effect, present consumption, future consumption and savings in your answer.

With respect to the consumption v. savings with incomes-in-two-periods model, an increase in the interest rate leaves a borrower worse off

and a lender better off. Discuss, using appropriate diagrams.