A consumer’s income in the current period is y1= 170 and income in the future period is y2 = 150. He pays lump-sum taxes t1 = 20 in the current period and t2 = 7 in the future period. The real interest rate is 10% every period.
a. Determine consumer’s lifetime wealth.
b. Suppose that current and future consumption are perfect complements for the consumer and he wants to have equal consumption in the current and future periods. Determine the consumer’s optimal consumption bundle (C1, C2).
c. Show this in a diagram with the consumer’s budget constraint and indifference curves.
d. Is he a saver or a borrower?