Suppose Nicole’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). Assuming Nicole’s autonomous consumption expenditure is $20,000 and her marginal propensity to consume is 0.75.

a) Plot Nicole’s consumption function (measure income in the horizontal axis and consumption on the vertical axis) for every point in her life. Plot Nicole’s consumption function if her autonomous consumption expenditure decreases to $15,000.

b) Calculate Nicole’s average propensity to consume when she is fifteen, twenty-five, and fifty (assuming autonomous consumption is $20,000).