M&B3 3rd Edition by Dean Croushore

Exercise 2

Describe how the budget constraint of a household in a two-period model is affected by each of the following changes. In each case, do you think the household is better off or worse off, or is the answer ambiguous If ambiguous, what does the answer depend on
a Period 1 income is lower.
b The interest rate is higher.
c Period 2 income is lower, and the interest rate is lower.