a$)(2)$ Frida gets an income of $$1000$ today and $$1000$ next year. Assume she uses her

income to either consume $($or save$/$borrow today$)$ and consume tomorrow. Her

endowment point is where she would neither borrow nor save today. In a diagram plot consumption today on the horizontal axis and consumption next year on the vertical axis and clearly identify her endowment point.

b$)(2)$ In the same diagram as a$),$ if the interest rate is $10\%($r$=0\mathrm{.}1)$ show the maximum consumption $($in $$)$ that she could have if she saved all her income today and consumed all her income next year. Similarly, show the maximum consumption $($in $$)$ that she could have if she borrowed from her future income to have more consumption today than her income today would let her.

c$)(2)$ Draw a new diagram that has all of the details from your diagram in a$).$ You must draw a new diagram. Assume that Frida is very patient and is willing to save today in order to have more consumption next year. Where would her indifference curve be to show her optimal choice of consumption today versus consumption tomorrow.

d$)(2)$ Suppose the interest rate rises to $20\%($r$=0\mathrm{.}2).$ You do not need to draw a diagram but explain whether you think Frida will save more or less of today$$s consumption than she did when the interest rate was $10\%($r$=0\mathrm{.}1).$ Explain your answer.