Go to the St. Louis Federal Reserve FRED database, and find data on the civilian population (CNP16OV) and the civilian population 55 years old and over (LNU00024230). Convert the two population series to “Quarterly” using the frequency setting, and download the data. Create a series and calculate, for each quarter, the fraction of people 55 and older relative to the entire population. Express your result as a percentage.

a) For the decades of the 1980s, 1990s, and 2000s, and for the period from 2010 to the most recent quarter of data available, calculate the average of the 55-and-older population ratios, and report your results.

b) Based on the decade-by-decade results, what would you expect to happen to the marginal propensity to consume out of permanent income, assuming the life-cycle hypothesis holds? Briefly explain.

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c) Suppose a shock resulted in declines of equal size in the wealth of households in the 1980s and today, but permanent income is unaffected. Based on your answer to part (a), how would such a decline impact consumption in each period, according to the life-cycle hypothesis? Briefly explain.

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