Assume that we are modeling inter-temporal consumption for a typical consumer. Further assume that we measure current consumption on the horizontal axis and future consumption on the vertical axis. A market exists where borrowing and lending can occur for a fixed interest rate, r. When a consumer can lend or borrow at the same interest rate, the consumer's budget constraint is a straight line.

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This is true according to the standard inter-temporal consumption model with borrowing and lending at a fixed interest rate. The budget constraint in this model is a straight line, where the slope equals -r. This statement is true, as a straight line represents all the points where the total amount of current and future consumption, discounted at the interest rate, equals the total amount of income, i.e. the budget constraint.

Assume That We Are Modeling Inter-Temporal Consumption for a Typical