Ben earns $4,000 this year and zero income the next year. Ben also has an investment opportunity in which he can invest $2,000 and receive $3,000 next year. Suppose Ben consumes $1,000 this year, invests in the project, and consumes $4,150 next year.

a. What is the market rate?

b. Suppose the interest rate increases. What will happen to Ben’s consumption for this year? Is Ben better or worse off than before the interest rate rise?