Ben earns $9,000 this year and zero income the next year. Ben also has an investment opportunity in which he can invest $3,700 and receive $9,400 next year. Suppose Ben consumes $4,200 this year, invests in the project, and consumes $10,638 next year.

a. What is the market rate of interest? (Hint: The new market interest rate line EF is parallel to AH.)

b-1. Suppose the interest rate increases. What will happen to Bens consumption for this year?

If interest rate increases, Ben's consumption increases/decreases .

b-2. Is Ben better off or worse off than before the interest rate rise?

Ben is better/worse off than before the interest rise.