According to the life-cycle hypothesis,
A) the present value of lifetime consumption equals the future value of lifetime income.
B) the income earned in a lifetime will be evenly divided between consumption and saving.
C) household consumption depends on income that households expect to receive each year, and financial markets are used to smooth consumption in response to changes in transitory income.
D) households use financial markets to transfer funds from periods when income is high to periods when income is low.

Question

Quizplus · Accepted Answer

The life-cycle hypothesis suggests that individuals plan their consumption and savings behavior over their lifetime, using financial markets to transfer funds from periods of high income to periods of low income, to maintain a stable consumption level.

According to the Life-Cycle Hypothesis