Draw a two period budget line where the borrow/lending rate of interest,r,allows consumers to choose consumption in each of the two periods.C₁ and C₂ given their anticipated income on two periods,Y₁and Y₂.The slope is A)r B)-r C)1 + r D)-(1 + r)

Question

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The slope of the two-period budget line is determined by the rate at which the consumer can trade off consumption between the two periods, taking into account the interest rate. This slope is given by -(1 + r), where r is the interest rate. This reflects the fact that to consume one more unit in the first period, the consumer must give up 1 + r units of consumption in the second period, due to the opportunity cost of not investing the consumption.

Draw a Two Period Budget Line Where the Borrow/lending Rate