1. Suppose your annual income is $82,000 this year and it is expected to increase 25% next year. The market interest rate is 3%.

a. Please illustrate all possible consumption patterns with a figure. Do not forget to label your axes.

b. You believe that your consumption this year and your consumption next year should be the same. If you follow your plan and consume equally in those two years, how much should you save or borrow this year?