(Solved): Please slove c,d,e with graph. Thank you! 1 Modigliani's Life Cycle Hypothesis Chaewon and Chacjun b ...

1 Modigliani's Life Cycle Hypothesis Chaewon and Chacjun both follow the life-cycle hypothesis: they smooth consumption perfectly. They each live for five periods, the last two of which are retirement. Here are their incomes earned during each period: They both die at the end of period five. To krep things simple, assume that the interest rate is zero for both saving and borrowing and that the life span is perfectly predictable. (a) For each individual, compute consumption and saving in each period of life. (b) Calculate their wealth (that is, their accumulated saving) at the end of each period. (c) Graph consumption, income, and wealth for each of them, with the period on the horizontal axis. (d) Suppose now that Chaewon predicts her life extends by one more period, considering advances in medicine. That is, she lives for six periods and dies at the end of period six. How does this change your answers for Chaewon above? Draw a new graph for Chaewon. (e) Suppose now that Chaejun cannot borrow, so wealth cannot be negative. How does this change your answers for Chaejun above? Draw a new graph for Chacjun.