If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest, the vertical (future consumption)intercept of the consumer's budget line is equal to
A) we.
B) we(1 + r).
E) -(1 + r)c + we(1 + r).

Question

If we represents a two-period consumer's lifetime wealth and r denotes the real rate of interest, the vertical (future consumption)intercept of the consumer's budget line is equal to
A) we. 
B) we(1 + r). 
E) -(1 + r)c + we(1 + r).

Quizplus · Accepted Answer

The vertical intercept of the consumer's budget line represents the amount of future consumption that the consumer can have if they save all of their current period income. Since the consumer's lifetime wealth is represented by we, the amount of future consumption they can have is we times the real interest rate (1+r), which is the future value of their savings. Therefore, the answer is B.

If We Represents a Two-Period Consumer's Lifetime Wealth and R