Precautionary savings leads households to act as if they are ___________ when they are not.
A)going to last forever
B)facing declines in the stock market
C)staring death in the eye
D)credit constrained
E)unemployed

Question

Quizplus · Accepted Answer

Precautionary savings are typically made by households to ensure that they can meet unexpected expenses or cope with a drop in income caused by factors such as unemployment or illness. As a result, households that engage in precautionary savings are effectively acting as if credit constrained, even if they are not necessarily facing financial hardship at present.

Precautionary Savings Leads Households to Act as If They Are