Assume that Gina’s consumption decisions are consistent with the LCH. In 2011, Gina is 25 years old, expects to earn income until she is 65, and expects to consume until she dies at age 85.
(a) If Gina earns $30,000 per year and wishes to consume an equal amount each year, how much will she consume each year?
(b) What is Gina’s ratio of consumption to income? What is her saving ratio?
(c) Assume that Gina has assets equal to $120,000 in 2011. Recalculate your answers for a and b.
(d) Assume that in 2031, Gina inherits $40,000. Now what are your answers to c?