Editing Budget constraint (section)

== Borrowing and lending ==
Budget constraints can be expanded outward or contracted inward through borrowing and lending. By borrowing money in a period, usually at an interest rate <big>'''''r'''''</big>, a consumer can choose to forgo consumption in future periods for extra consumption in the borrowing period. Choosing to borrow would expand the budget constraint in this period and contract budget constraints in future periods. Alternatively, consumers can choose to lend their money in the current period, usually at a lending rate <big>'''''l'''''</big>. Lending contracts the budget constraint in the current period but expands budget constraints in future periods.<ref name="Allingham">Allingham, Michael (1987). ''Wealth Constraint,'' The New Palgrave: A Dictionary of Economics, {{doi|10.1057/978-1-349-95121-5_1886-1}}</ref> According to behavioral economics, choices on borrowing and lending may also be affected by [[Present bias]]. In economics, there are two groups of present biased individuals, sophisticated individuals who are aware of their present bias, and naive individuals who are not aware of their present bias.<ref>O'Donoghue, Ted, and Matthew Rabin. 2015. "Present Bias: Lessons Learned and to Be Learned." American Economic Review, 105 (5): 273-79.</ref>