3. Consumers typically pay a higher real interest rate to borrow than they receive when they lend (by making bank deposits, for example). Draw n consumer's budget line under the assumption that the real interest rate earned
on funds lent, is lower than the real interest rate paid to borrow, ).
Show how the budget line is affected by an increase in 7, an increase in, or an increase in the consumer's initial
wealth
Show that changes in and may leave current and future consumption unchanged. (Hint: Draw the consumer's
indifference curves so thnt the consumer initially chooses the no-borrowing, no-lending point.)