Question 1 Question 1A (a) If endowments today are ei, endowments tomorrow are e2 and interest rates in fi- nancial markets are r for both borrowing and saving, derive the equation of intertemporal budget constraint in present value terms, denoting consumption today by c and consump- tion tomorrow by c2. (b) In your equation, which term is the present value of lifetime income and which term is the present value of lifetime consumption? Also, provide a brief economic interpretation regarding why these two terms are related in the way that they are related to each other. (c) Why do we refer to such budget constraints as arising from endogenous income? What is the difference between exogenous and endogenous income? (a) Plot the intertemporal budget constraint with c on axis and cz on y axis when en > e2 > 0. Identify the region of constraint which corresponds to borrowing against future resources and region in constraint which corresponds to saving today to increase future consumption possibilities. (e) Assume that preferences are quasilinear in today's consumption c. Under these preferences, graphically identify the wealth and substitution effects on both c and c, from a change in interest rate r. Carry out this exercise only for the case when the agent was borrowing to begin with at initial interest rates