Gwen is a real estate agent, and she knows that she will have some good years and some bad years, but she wants to smoothe her consumption over time. She figures that half the time she’ll earn $90,000 per year, and half the time she’ll earn $20,000 per year. These numbers are after taxes and after saving for retirement, so these numbers are all she has to worry about.
If we ignore interest costs just to keep things simple, how much should Gwen consume in an average year?
