Intertemporal Consumption-Savings Model
Draw the complete intertemporal consumption-savings model, and label completely and correctly. You may choose whether your consumer is a borrower or a lender, but state your choice.
Now suppose there is a increase in future disposable income. Draw the change on your graph. Clearly indicate the substitution and income eects. Determine which of the income and substitution eects is dominant. If your consumer switched type (borrower or lender), be sure to state it. Provide a one- or two-sentence explanation of how the increase in future disposable income acted the consumer's optimal consumption bundle.