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Kevin is a Nobel laureate who teaches genetics at a university where he is paid a yearly salary of $160,000. He plans to take the

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Kevin is a Nobel laureate who teaches genetics at a university where he is paid a yearly salary of $160,000. He plans to take the next year off to write a book, so he won't earn any money next year. He is currently trying to figure out how much of this year's salary he should save for next year. Disregard any tax considerations, and disregard what happens after next year. In other words, assume that next year, Kevin will consume whatever he saves, plus any interest, and that he's not thinking beyond next year. The following graph shows Kevin's preferences for consumption this year and next year. Suppose initially Kevin cannot earn interest on the money he saves. Use the green line (triangle symbol) to plot Kevin's budget constraint (BC1) on the following graph. Then use the black point (plus symbol) to show his optimum consumption bundle. Note: Dashed drop lines will automatically extend to both axes. 240 A 8 BC, (0% Interest) 8 Initial Optimum (0% Interest) O CONSUMPTION NEXT YEAR (Thousands of dollars) 8 BC, (50% Interest) 8 8 New Optimum (50% Interest) 60 80 100 120 140 160 180 200 220 240 O 20

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