Problem
1. Why is the substitution effect characterized as a pivoting of the intertemporal budget line?
2. Why is the income effect characterized as a parallel shift of the intertemporal budget line?
3. If instead of being a borrower in period 1, Carmencita is a lender, what will be the effect on consumption today if the real interest rate rises?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.