Precautionary savings lead 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 savings that households keep aside for unforeseen events that may arise in the future, such as job loss or medical emergencies. These savings allow households to act as if they have a buffer against such adverse events, even if they are not credit constrained at the moment. Therefore, option D - credit constrained - is the best choice.

Precautionary Savings Lead Households to Act as If They Are