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(4) For each individual, suppose there a unit increase in time 1 income. So the type 1 individual
has 7 units of income at time 1 and the type 2 has 3 units of income at time 1 . What is the
impact on the equilibrium interest rate. Explain the intuition behind this result, showing the
impact on the total saving curve. ( 3 points) What are the new values for s1 and s2 ? What is the
new value for the equilibrium interest rate? Use the graph above to show the impact on the total
saving curve and the impact on the equilibrium interest rate.

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  • 1. (4) For each individual, suppose there a unit increase in time 1 income. So the type 1 individual has 7 units of income at time 1 and the type 2 has 3 units of income at time 1 . What is the impact on the equilibrium interest rate. Explain the intuition behind this result, showing the impact on the total saving curve. ( 3 points) What are the new values for s1 and s2 ? What is the new value for the equilibrium interest rate? Use the graph above to show the impact on the total saving curve and the impact on the equilibrium interest rate.