The life-cycle model was designed, in part, to explain
A)why poor nations save more than do rich nations
B)why poor nations save a larger fraction of disposable income than do rich nations
C)why the fraction of total disposable income that is saved seems to remain constant as an economy grows
D)how the saving rate varies over an economy's life-cycle
E)Keynes' contention that too much saving can cause a recession

Question

Quizplus · Accepted Answer

The life-cycle model is used to explain why the fraction of total disposable income that is saved seems to remain constant as an economy grows. It suggests that people save a larger fraction of their income when they are young and working, and then spend more in retirement when their need for savings decreases. This pattern remains consistent across different income levels and economic growth.

The Life-Cycle Model Was Designed, in Part, to Explain