A recent medical school graduate age 26 will intern for seven years, making $30,000 a year. Thereafter, she will make $250,000 a year for 30 years. At age 26, she also has assets of $570,000.
(a) In the absence of liquidity constraints, how much will she consume per year if she expects to live to age 83?
(b) Suppose that a collapse in the stock market reduces the value of her assets at age 26 to $285,000. How much will she now consume per year if she expects to live to age 83?