Ms. Venus has $100 income this year and $110 next year. The market interest rate is 10% per year. Suppose Ms. Venus consumes $60 this year. What will be her consumption next year?
A) $154
B) $170
C) $120
D) None of the above

Question

Quizplus · Accepted Answer

Ms. Venus can save $40 this year and earn $4 interest on it next year. Thus, she will have $114 next year. If she consumes $60 this year, she will have $40 left over. With the $4 interest, she will have $44 next year. If she consumes $110 next year, she will have $4 left over. Thus, her consumption next year will be $110 + $4 = $114.

Ms Venus Has $100 Income This Year and $110 Next