Modern Principles: Macroeconomics 4e & Launchpad For Modern Principles Of Macroeconomics (six-month Access)
Modern Principles: Macroeconomics 4e & Launchpad For Modern Principles Of Macroeconomics (six-month Access)
4th Edition
ISBN: 9781319200336
Author: Tyler Cowen, Alex Tabarrok
Publisher: Worth Publishers
Question
Book Icon
Chapter 9, Problem 1FT
To determine

How to ensure smooth consumption.

Expert Solution & Answer
Check Mark

Explanation of Solution

If people want to smooth their consumption over time, they tend to reduce the current consumption and save more. According to the consumption – smoothing theory, people who have fluctuations in income, save most of their income in the good years and use it during the bad times in order to maintain a smooth consumption pattern. When people receive an unexpected winning as a lottery, they tend to postpone their consumption from periods of high income to low income to obtain more stability and predictability. They may also spend money for consuming durable goods like houses or cars which represent spending over time.

Economics Concept Introduction

Concept introduction:

Consumption: Consumption is defined as the act of utilising the total or partly income to meet the needs in a given period of time.

Savings: Savings is defined as the part of income that is not consumed in the current period.

Consumption smoothing: Consumption smoothing is the economic concept which refers to the desire of people to have a stable consumption pattern.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
A health study tracked a group of persons for five years. At the beginning of the study, 20%were classified as heavy smokers, 30% as light smokers, and 50% as nonsmokers. Resultsof the study showed that light smokers were twice as likely as nonsmokers to die duringthe five-year study, but only half as likely as heavy smokers.A randomly selected participant from the study died during the five-year period. Calculatethe probability that the participant was a heavy smoker
Consider two assets with the following returns: State Prob. of state R₁ R2 1 23 13 25% 5% 2 -10% 1% Compute the optimal portfolio for an investor having a Bernoulli utility of net returns u(r) = 2√√r+ 10. Compute the certainty equivalent of the optimal portfolio. Do the results change if short-selling is not allowed? If so, how?
In the graph at the right, the average variable cost is curve ☐. The average total cost is curve marginal cost is curve The C Cost per Unit ($) Per Unit Costs A 0 Output Quantity B
Knowledge Booster
Background pattern image
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:9780190931919
Author:NEWNAN
Publisher:Oxford University Press
Text book image
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Text book image
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Text book image
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Text book image
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Text book image
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education