The options for blanks #1 and #3 are: a) with the lower interest rate. b) with the higher interest rateThe options for blanks #2 and #4 are: a) be a lender rather than a borrower. b) have more of a balance between current and future consumption. c) have a higher level of consumption that cannot be achieved with the borrowing constraint.

A consumer receives income y in the current period and income y' in the future period, and pays taxes of t and t' in the current and future periods, respectively. The consumer can lend at the real interest rate r - The consumer is given two options. First, he or she can borrow at the interest rate r, but can borrow only an amount x or less, where A x 1, . Use a diagram to determine which option the consumer chooses, and explain your results. C The lifetime budget constraints and indifference curves of two consumers with different consumption preferences are Future Consumption, c' displayed on the right. Determine which option Consumer 1 will choose and which option Consumer 2 will choose based on their preferences and optimal consumption bundles. Consumer 1 will choose the option because he or she prefers to D Consumer 2 will choose the option because he or she Current Consumption, c Consumer 1 prefers to A B C Future Consumption , c' G D Current Consumption, c Consumer 2