Suppose that you earn $1,000 in year 1 and will earn $216 in year 2. If you borrow money against your future income you will have an additional $160 to spend in year 1, and if you lend all of your current income you will have an additional $1,350 to spend in year 2. In both years you consume only food which costs $1 per kilogram in each year.

What is the interest rate that you borrow and lend at?

Let your MRS for food in year 1 with food in year 2 be given by the formulaF2/F1whereF1 is the amount of food consumed this year andF2 is the amount of food consumed next year.

Calculate your consumption bundle:

F1=

F2=