Suppose that you earn $480 in year 1 and will earn $480 in year 2. If you borrow money against your future income you will have and additional $400 to spend in year 1, and if you lend all of your current income you will have and additional $576 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? R = Let your MRS for food in year 1 with food in year 2 be given by the formula F2 F1 where F, is the amount of food consumed this year and Fo is the amount of food consumed next year. Calculate your consumption bundle: F= Fo = Suppose the interest rate at which you can borrow and lend changes to 25%. Calculate your new consumption bundle: F= Fo = Which interest rate is preferred? The initial interest rate found in part 1 The new interest rate, 25%