Maryanne expects to work for another 30 years and expects to live another 10 years after she retires.If Maryanne completely smooths consumption over her lifetime,her marginal propensity to consume out of wealth is
A) 0.025.
B) 0.033.
C) 0.075.
D) 0.10.

Question

Quizplus · Accepted Answer

The marginal propensity to consume out of wealth is the fraction of a change in wealth that is consumed. In this case, Maryanne expects to work for another 30 years and expects to live another 10 years after she retires. So, she has a total of 40 years of consumption ahead of her. Her marginal propensity to consume out of wealth is therefore 1/40 = 0.025.

Maryanne Expects to Work for Another 30 Years and Expects