Question 1.1 Express 8 from the second equation and use it to substitute S out of the rst equation to obtain 02 1 + R This equation is called the intertempoml budget constraint. Observe that on the lefthand side, we have the present discounted value of consumption. The intertemporal budget constraint states that the present discounted value of consumption (i.e., all your spending) must be equal to your wealth. 01+ =W