In the life-cycle hypothesis, a person who expects to work for R years earning Y dollars per year, and live for a total of L years, will consume ________ per year.

Question

Quizplus · Accepted Answer

The life-cycle hypothesis suggests that individuals plan their consumption and savings over their lifetime to smooth consumption. Therefore, they would consume a fraction of their lifetime earnings each year, which is represented by (R/L)Y, where R is the number of working years, L is the total number of years, and Y is the annual income.

In the Life-Cycle Hypothesis, a Person Who Expects to Work