Consider the two-period inter-temporal consumption model. supposing that both present and future consumption are normal goods, evaluate the following story: jacob is planning to borrow money from a bank and then discovers that the interest rate is now higher. a. describe jacob’s initial plan (before he discovers a rise in the interest rate) on a diagram taking present consumption on the horizontal axis [note: you are asked to describe Jacob's utility-maximizing behavior]. b. if jacob takes out a loan from the bank under the higher interest rate, will the loan be larger or smaller than what he had planned earlier (i.e. his planned loan described in part (a))? use the following two terms in your explanation: substitution effect; income effect. [note: the loan here means what jacob will have to repay in the future.] c. would he necessarily be better off borrowing money (even after he discovered a rise in the interest rate) rather than depositing money at the bank? explain. 4. mar spends her income (i) on bread (b) and all other goods (aog). the price of the bread is $3 per loaf. suppose the government offers her non-tradable bread stamps that are worth $60. bread stamps can be used only to purchase bread. under this policy, it turns out she chooses a bundle where her marginal rate of substitution of bread for (the expenditure on) all other goods is 2 (dollars). would she be better off with $60 in cash than with the bread stamps? if yes, explain why. otherwise, explain why not. use a diagram (or diagrams) taking loaves of bread on the horizontal axis and the expenditure on all other goods on the vertical axis.