Two-period consumption model of borrowing and saving

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Consider the two-period consumption model of borrowing and saving. Suppose Claire has an income of m1 today and m2 a year from now and can borrow and lend at the interest rate r. She chooses consumption levels c1 and c2 given her well-behaved preferences. a. Draw Claire's budget constraint and indierence curves. Draw her indierence curves such that she chooses to save money. b. Suppose the interest rate increases to r0. Show how the budget constraint moves following this change. c. Will Claire remain a saver after the price increase? Show why on your diagram.

Reference no: EM13840416

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