# dolution

Suppose NicoleĂ˘â‚¬â„˘s yearly income is \$5,000 when she is fifteen, \$35,000 when she is twenty-five, and \$70,000 when she is fifty (these are all present value measures of future income). Assume that NicoleĂ˘â‚¬â„˘s autonomous consumption expenditure is \$20,000 and that her marginal propensity to consume is 0.75.

a) Plot NicoleĂ˘â‚¬â„˘s consumption function (measure income on the horizontal axis and consumption on the vertical axis) for every point in her life. Plot NicoleĂ˘â‚¬â„˘s consumption function if her autonomous consumption expenditure decreases to \$15,000.

b) Calculate NicoleĂ˘â‚¬â„˘s average propensity to consume when she is fifteen, twenty-five, and fifty (assuming autonomous consumption is \$20,000).

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