We collapse the consumer's current-period and future-period budget constraints into a single lifetime budget constraint by

Question

Quizplus · Accepted Answer

By substituting for savings, we can combine the current and future budget constraints into a single lifetime budget constraint. This is achieved by rearranging the future budget constraint to highlight the amount of assets or savings that the consumer will have in the next period, and then substituting this into the current budget constraint. This allows us to consider the consumer's consumption and savings decisions over their entire lifetime, rather than just in the current period or future periods separately.

We Collapse the Consumer's Current-Period and Future-Period Budget Constraints into a Single