Consumption smoothing means:
A) never borrowing.
B) borrowing every year to consume more than one earns.
C) borrowing to consume more than one's income in high-income years and consuming less than one's income in low-income years.
D) borrowing to consume more than one's income in low-income years and consuming less than one's income in high-income years.

Question

Quizplus · Accepted Answer

Consumption smoothing refers to the financial strategy of borrowing money during low-income periods to maintain a certain level of consumption, and saving or consuming less during high-income periods to repay the debt and prepare for future low-income phases. This approach helps individuals maintain a relatively stable standard of living over time.

Consumption Smoothing Means