When forming the budget constraint for the intertemporal utility function , given that there is labour income in period 1 in the amount and interest on savings from the first period at rate , should the interest income be discounted? That is, should the budget constraint be
(where s is savings, c is consumption)
The second makes better theoretical sense (both sides of the equation are in PV terms), but my professor claims the first one is correct. I'm at a loss.