answer for ++ rating

1a-1d

1a. James has a new job as a research assistant on a tropical forest ecology research project in Brazil. He is going to be paid $54,000 this year, and has been promised a raise to $56,000 next year. He has some assets saved away totaling $20,000 and he has a good relationship with his local Vermont bank so is able to earn 5% on any savings, and also borrow money (borrowing against his future income) at 5%. James tends to think about money in $10 increments so the price of consumption is $10. 1. Plot Jamess intertemporal budget line, clearly showing the Y-intercept and X intercept on a graph

b,. Draw in an indifference curve representing that James is future oriented (a saver), ceteris paribus. Clearly identify what the optimal quantities of consumption are in year 1 and year 2, based on where you drew this indifference curve. These optimal quantities should be numbers (based on real dollar values). Year 1 consumption: _____________________ Year 2 consumption: _____________________

c. Draw the comparative statics for ONE of the following, showing the change in equilibrium on your graph above (you do not need to show new dollar values, just show the changes and resulting equilibrium on the graph). Circle the ONE comparative static you are drawing: a. James gets a bonus check from the government NOW for 1,000 b. James expects to have a pay cut in year 2 to 50,000 c. The interest rates are cut by the Fed to 4% d. James expects increased inflation next year by 6%

d.. In words, how might the response of a very low income consumer differ from the response of a higherincome consumer (both facing the same change you chose in question 3)? Use the phrase marginal propensity to consume in your response.