According to the life cycle theory of savings,a typical person's:
A) saving is smooth over their entire lifetime.
B) consumption is smooth over their entire lifetime.
C) consumption in a given year is related to their income in that year.
D) saving is the highest when they die.

Question

Quizplus · Accepted Answer

The life cycle theory of savings suggests that individuals aim to smooth out their consumption over their lifetime, rather than their savings or having their consumption directly match their income in any given year. This means they save during their working years and dissave (spend their savings) during retirement to maintain a stable level of consumption throughout their life.

According to the Life Cycle Theory of Savings,a Typical Person's