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Over the next two years, Susan's income will be $33,000 in the first year and $33,000 in the second year. She can both borrow and lend money at the 10% of annual interest.
(a) What are the present and future (next year's) value of her 2-year income?
(b) Draw Susan's intertemporal budget line for the 2-year period. (c) If the interest rate decreases, how will this affect the present value of Susan's two-year income? Explain and illustrate in the above graph.
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