Ted lives for exactly two years. During the first year he works, earning $1000; during the second year he is retired. During the first year Ted can save some of his earnings, earning an interest rate of 10%; he can spend his savings (including interest) during the second year of his life.

a. Write an equation that represents Ted's intertemporal budget constraint. Define all variables (letters) that you use in the equation. Be as specific as possible given the information that you have about Ted.

b. Ted decides to save $100 during his first year of life. Calculate Ted's consumption (spending) during his first year of life and during his second year of life.