Antonio is a researcher who teaches thermodynamics at a university where he earns an annual salary of $160,000. He intends to take the next year off to focus on writing a new undergraduate physics textbook, so he will not earn any income next year. He is currently deciding how much of this year's salary he should save for next year. Assume that there are no tax implications associated with the decision, and ignore what happens after next year. Therefore, next year Antonio will consume whatever he saves this year plus interest, and he is not concerned with the future beyond next year.The following graph shows Antonio's preferences for consumption this year and next year. Suppose initially Antonio cannot earn interest on the money he saves.Use the green line (triangle symbol) to plot Antonio’s budget constraint ($BC_1$) 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.---### Graph Explanation:- **Axes:** - X-axis: **Consumption This Year (Thousands of dollars)** ranging from 0 to 240. - Y-axis: **Consumption Next Year (Thousands of dollars)** also ranging from 0 to 240.- **Curves and Lines:** 1. **Purple Curves:** Represent different consumption preferences over the two years. Two curves are shown. 2. **Green Line (Triangles):** $BC_1$ (0% Interest) - Represents the budget constraint when no interest is earned on savings. 3. **Blue Line (Circles):** $BC_2$ (50% Interest) - Represents the budget constraint with a 50% real interest rate on savings. 4. **Line Segments 1 and 2:** Help visualize shifts in consumption preferences.- **Points:** 1. **Black Plus (+):** Initial Optimum (0% Interest) - Represents Antonio’s initial optimum consumption point without interest. 2. **Grey Star (*):** New Optimum (50% Interest) - Represents Antonio’s new optimum consumption point with a 50% interest rate.---Now suppose Antonio can earn 50% real interest on any money he saves.Use the blue line (circle symbol) to plot his new budget constraint ($BC_2$) on the previous graph. Then use the grey point (star symbol) to ### Exercise on Interest Rates and Savings#### InstructionsUsing the previous graph, complete the following table by indicating how much Antonio should save of his current income when he cannot earn any interest on his savings and when he can earn 50% interest on his savings.| Interest Rate (Percent) | Amount Antonio Saves (Dollars) ||------------------------|--------------------------------|| 0 | || 50 | |#### QuestionWhich of the following statements is a good description of the results of this exercise, as well as its implications for broader consumer behavior?1. ☐ All consumers, including Antonio, save more money when interest rates are high, because they get a higher return on that investment.2. ☐ In this case, Antonio saves more money when interest rates are high. However, consumers with different preferences might save less money when interest rates are high.3. ☐ All consumers, including Antonio, save less money when interest rates are high, because they don’t need to save as much money to have the same future income.4. ☐ In this case, Antonio saves less money when interest rates are high. However, consumers with different preferences might save more money when interest rates are high. Take into consideration how interest rates might affect individual consumer preferences and the amount they choose to save.

The indifference curve (IC) is a graphical representation of different combinations of two…

Antonio is a researcher who teaches thermodynamics at a university where he earns an annual salary of $160,000. He intends to take the next year off to focus on writing a new undergraduate physics textbook, so he will not earn any income next year. He is currently deciding how much of this year's salary he should save for next year. Assume that there are no tax implications associated with the decision, and ignore what happens after next year. Therefore, next year Antonio will consume whatever he saves this year plus interest, and he is not concerned with the future beyond next year. The following graph shows Antonio's preferences for consumption this year and next year. Suppose initially Antonio cannot earn interest on the money he saves. Use the green line (triangle symbol) to plot Antonio'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 T

Antonio is a researcher who teaches thermodynamics at a university where he earns an annual salary of $160,000. He intends to take the next year off to focus on writing a new undergraduate physics textbook, so he will not earn any income next year. He is currently deciding how much of this year's salary he should save for next year. Assume that there are no tax implications associated with the decision, and ignore what happens after next year. Therefore, next year Antonio will consume whatever he saves this year plus interest, and he is not concerned with the future beyond next year. The following graph shows Antonio's preferences for consumption this year and next year. Suppose initially Antonio cannot earn interest on the money he saves. Use the green line (triangle symbol) to plot Antonio'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 T

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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