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 cannot borrow money or earn an interest rate for saving money, the consumer's budget constraint is a straight line.

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If a market exists where borrowing and lending can occur for a fixed interest rate, the consumer's budget constraint would not be a straight line, but instead would be a slope determined by the interest rate. If a consumer cannot borrow money or earn an interest rate for saving money, their budget constraint would be a vertical line, not a straight line.

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