Suppose that your consumption decisions are consistent with the Life Cycle Hypothesis. Suppose that this year,

you are 23 years old. After graduation this year you are going to get your PhD in Economics which is going to

take 5 more years and then teach. You expect to earn the average salary for a new PhD hire, $95,000. For

simplicity, assume that you will never get a raise and interest rates are 0%. Suppose that you are planning on

working for 35 years after you finish your own PhD and then you plan to retire and live for another 10 years. Suppose

that you have no initial wealth.

a) What is your current consumption and savings/borrowings? (15)

b) What is your consumption and savings/borrowings next year? (10)

c) In five years, after you finish your own PhD, you get a job and to your surprise, the shortage of Economics

professors has increased and now the starting salary (and salary from now on) is $120,000. What will your

consumption be in your first year of teaching? (15)