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l. (44} points} Consider two consumers, A and E. A and B both want perfect consumption smoothing {c = er) and both have no current
l. (44} points} Consider two consumers, A and E. A and B both want perfect consumption smoothing {c = er) and both have no current wealth. However, the two consumers have different income streams. Person A's current income, 35.5,, = Ill}, and future income, ya, = 156. Person B's current income, v3, is 140, and future income, f3, = is 132. The real interest rate is 20%. {a}. Calculate the present value of lifetime resources (PVLR) for consumer A and consumer B, respectively. {b}. Draw consumer A's budget constraint. How does the budget constraint of consumer A compare to the budget constraint of consumer B? Explain. {c}. Find consumer A's optimal lifetime consumption plan, (ca, cfx}. How does consumer B's optimal lifetime consumption plan, (ca, cfa}, compare to consumer A's lifetime consumption plan? Explain. {d}. Is consumer A a current saver or a current borrower? Explain. Is consumer B a current saver or a current borrower? Explain. {e}. Draw a graph that illustrates how an increase in the interest rate {above {1.10) will affect the budget constraints of consumer A and consumer B. How does the budget constraint of consumer A compare to the budget constraint of consumer B
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