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Product between wealth and the interest rate

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Let us consider the framework we have presented in class to study inter- temporal choices and assume that saver's income,m, can be decomposed into the sum of capital (k) and labour (I) incomes. Considering there is no inflation, model the inter-temporal budget constraint and draw its graph. What are the values of both intercepts? If capital income increases in period 2, and the interest rate remains the same, what happens to the budget line? Let us now express capital income as the product between wealth and the interest rate. Derive the new budget line. Is the slope of the budget line affected by this?

Reference no: EM133218060

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