A consumer lives three periods, called the learning period, the working period, and the retirement period.
A consumer lives three periods, called the learning period, theworking period, and the retirement period. Her income is 200 during thelearning period, 800 during the working period, and 200 again during theretirement period. The consumer’s initial assets are 300. The realinterest rate is zero. The consumer desires perfectly smoothconsumption over her lifetime.a. What are consumption and saving in each period, assuming noborrowing constraints? What happens if the consumer faces a borrowingconstraint that prevents her from borrowing?b. Assume that the consumer’s initial wealth is zero instead of 300.Repeat part (a). Does being borrowing-constrained mean that consumptionis lower in all three periods of the consumer’s life than it would beif no borrowing constraints applied?
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