Consider consumption in two periods, $c _ { 1 }$ and $c _ { 2 }$ . Consumption smoothing implies people prefer to consume $\bar { c } = ( 1 / 2 ) \left( c _ { 1 } + c _ { 2 } \right)$ if $\beta = 1$ and R = 0.

Question

Consider consumption in two periods, $c _ { 1 }$  and $c _ { 2 }$  . Consumption smoothing implies people prefer to consume $\bar { c } = ( 1 / 2 ) \left( c _ { 1 } + c _ { 2 } \right)$  if $\beta = 1$  and R = 0.

Quizplus · Accepted Answer

Consumption smoothing implies that individuals prefer to have a constant level of consumption over time. When $\beta = 1$ and $R = 0$, the utility from consumption in both periods is equal, leading to the preference for the average consumption $\bar{c}$.

Consider Consumption in Two Periods c1c _ { 1 }c1​ And c2c _ { 2 }c2​

Consider Consumption in Two Periods $c _ { 1 }$ And $c _ { 2 }$