I asked the following question:

""when considering intertemporal chioce, consumers can save at the interest rate r and also save at the same rate r.

Now, lets consider the intermediate scenario where :

there are 2 periods: period 1 and period 2

consumer gets endownment of y₁ in period 1 and y₂ in period 2

consumption levels c₁ and c₂ in period 1 and 2

consumer can save at the rate r_s and borrow at r_b where r_s< r_b

Q) in the case in which consumer consumes less than income in period 1, what is his budget constraint? what is the budget constraints in both periods and using the

2 budgets constraints to derive, what is the lifetime budget constraint?""

The answer is:

""Budget constraint for period 1: Y1 = C1 + (Y1-C1)(1+r_s )

Budget constraint for period 2: Y2 = C2 + (Y1-C1)(1+r_s )

Budget constraint for period 1 and 2: Y1 + Y2 = C1 + C2 + 2(Y1-C1)(1+r_s )""

Further question:

Q) Can you also provide a graphical representation of this by drawing a graph of the budget constraint and shade the area (for clear understanding) which shows the combination of 1st and 2nd period consumptions that the consumer can choose? And can you please show on the same graph, the indifference curves for the following 3 scenarios:

1)consumer saves,

2) consumer borrows,

3) consumer neither saves nor borrows.

And for further clarification, how is the first period consumption determined in each of these 3 cases?