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Imagine an agent has an endowment y=40 consumption goods in the first period of his life. The rate of return of money is 1.2. (a)
Imagine an agent has an endowment y=40 consumption goods in the first period of his life. The rate of return of money is 1.2.
(a) Write down the budget constraint in the first period and in the second period. (1 point)
(b) Combine the two equations in point (a) in only one equation, the intertemporal budget constraint.(1 point)
(c) Use the numbers for the endowment and rate of return of money to draw the budget set in a graph with consumption when young in the x axis and consumption when old in the y axis. (2 points)
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