1.Mary is 40 years old, plans to retire at 65 and the actuarial tables tell her she can expect to live until 80.The market value of her stock portfolio and home are, respectively, $300,000 and $400,000.She expects to earn $100,000 per year over the rest of her career.

a)Plot Mary's consumption function.What is her autonomous consumption and marginal propensity to consume?

b)How much does Mary consume and save each year if she follows the life-cycle theory?

c)Suppose the market value of Mary's home declines by 50 percent.How does this affect her savings and consumption?

Suppose Mary's wealth is unchanged, but her annual salary declines by 50 percent.How does this affect her savings and consumption?