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Problem 10 (modified) Karen earns $100 , 000 in the current period and will earn $110 , 000 in
the future period. 1. Assuming that these are the only periods, and the banks borrow and lend at
an interest rate of r = 0 , draw her intertemporal budget constraint. 2. Now suppose that banks
offer 10 percent interest on funds deposited in the current period, and offer loans also at 10
percent rate. Draw her new intertemporal budget constraint.

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