1. Currently, Jim Morris makes $100,000. Next year his income will be $120,000. Jim is a big spender and he wants to consume $150,000 this year. The equilibrium interest rate is 10 percent.

What will be Jims consumption potential next year if he consumes $150,000 this year?

2. Rich Pettit is a miser. His current income is $50,000; next year he will earn $40,000. He plans to consume only $20,000 this year. The current interest rate is 12 percent. What will Richs consumption potential be next year?

The Competitive Finance Market

3. What is the basic reason that financial markets develop?