Use Figure 15.2 to answer the following questions.
-An implication of Figure 15.2 is that consumers
A)smooth consumption.
B)are risk takers.
C)save all their income in period 1.
D)are risk neutral.
E)always consume .

Question

Use Figure 15.2 to answer the following questions. 
-An implication of Figure 15.2 is that consumers
A)smooth consumption. 
B)are risk takers. 
C)save all their income in period 1. 
D)are risk neutral. 
E)always consume .

Quizplus · Accepted Answer

Figure 15.2 shows an individual's consumption and income over time. The individual has a relatively stable income stream but experiences fluctuations in consumption due to unexpected events such as job loss or illness. To smooth consumption, the individual saves during high-income periods and spends during low-income periods. Therefore, the implication of the figure is that consumers tend to smooth their consumption. Option B is not necessarily true as consumers may be risk-averse and opt for a more stable consumption pattern. Option C is not true as the figure shows that the individual does not save all their income in period 1. Option D is not necessarily true as consumers may have a preference for risk aversion or risk-seeking behavior. Option E is not true as the figure shows fluctuations in consumption.