The life-cycle hypothesis predicts there to be a rather ________ short-run multiplier and thus a rather ________ private economy.
A)low,unstable
B)low,stable
C)high,unstable
D)high,stable

Question

Quizplus · Accepted Answer

According to the life-cycle hypothesis, individuals adjust their consumption based on their expected lifetime income, hence in the short-run, the multiplier effect is predicted to be low. However, in the long-run, the multiplier effect could be higher due to individuals' ability to adjust their consumption patterns over time. Therefore, a stable private economy is more likely when using the life-cycle hypothesis.

The Life-Cycle Hypothesis Predicts There to Be a Rather ________