If people can borrow and lend to perfectly smooth out their lifetime living standards, then

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If people can borrow and lend to perfectly smooth out their lifetime living standards, then any fluctuations in income that occur over a person's lifetime are not indicative of a person's true standard of living. Therefore, permanent income, which represents a person's average income over the course of their lifetime, is a better measure of living standards than current annual income or life cycle income, which takes into account only a portion of a person's overall income stream.

If People Can Borrow and Lend to Perfectly Smooth Out