The Two Primary Explanations for the Excess Volatility of Consumption

question 62

Multiple Choice

The two primary explanations for the excess volatility of consumption are

• A) consumers' limited life spans and credit market imperfections.
• B) credit market imperfections and changes in market prices.
• C) changes in market prices and distorting taxes.
• D) distorting taxes and consumers' limited life spans.
• E) changes in market prices and consumer's limited life spans.

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Definitions:

Restrictive Policy

A policy that limits or restricts certain actions, typically implemented to control financial practices or prevent excessive risk-taking.

Inventory

The total amount of goods and materials held by a company intended for sale or used in the production of goods sold.

Optimal Current Asset Holdings

Refers to the ideal mix of cash and other current assets a company maintains to meet its operational and investment needs effectively and efficiently.

Flexible Policy

A strategy or approach that can be adjusted easily in response to changing circumstances, often applied in economic or business contexts.