According to the permanent-income and life-cycle hypotheses, if we wish to smooth consumption over our lifetimes we can:
A) get higher-paying jobs.
B) borrow and lend to ourselves over our lifetimes.
C) set consumption proportional to the real interest rate.
D) never change our spending patterns.
E) always save 15 percent of our incomes.

Question

Quizplus · Accepted Answer

According to the permanent-income and life-cycle hypotheses, individuals can smooth consumption over their lifetimes by borrowing and lending to themselves. This means that they can borrow money during periods of low income and repay it during periods of high income. By doing so, they can maintain a relatively constant level of consumption over their lifetimes. The other choices (A, C, D, and E) do not necessarily align with these hypotheses and may not be effective in smoothing consumption over an individual's lifetime.

According to the Permanent-Income and Life-Cycle Hypotheses, If We Wish