Question: Susan is making saving plans for this year and next. She knows that her real income after taxes will be $50000 in each year for sure. The banks borrow money at 10% and lend it out at 15%. Susan has pledged donating $12600 next year to an orphanage. She hates having swings in her lifestyle, and enjoys living in exactly the same living conditions in both years, and she does not care at all what will happen after the second year, because she will be able to bequeath an incredibly large amount of money, but she cannot borrow towards that money.
1. How much should Susan save or borrow this year? How much should she consume? How are the amounts that Susan should save and consume affected by each of the following changes (one at a time, keeping others constant at original values)?
2. Susan's current income rises from $50000 to $54200.
3. The income she expects to receive next year increases to $54200.
4. If she decides to donate $14700 to the orphanage.
5. All interest rates increase by 15%.