Mario Knows That,over the Long Run,it Is in His Best

question 75

Multiple Choice

Mario knows that,over the long run,it is in his best interest to save at least 10 percent of his paycheck for retirement.However,each time he receives his weekly paycheck of $1,000,he ends up spending it all and not depositing any to a retirement account.Mario has resolved to contact his employer's Human Resources Department to set up a 401(k) work-sponsored retirement account where the 10 percent would be deducted automatically from his paycheck before it is issued to him each week.It is apparent from this information that Mario realized

• A) his intertemporal decisions are inconsistent and he had to take action to make them consistent.
• B) his intertemporal decisions are consistent and he had to take action to make them inconsistent.
• C) it is better for him to handle sending money to a retirement account than to rely on his employer to send the money to a retirement account on his behalf.
• D) he should not be saving for retirement after all because his short-run preferences to spend his entire paycheck are perfectly indicative of his long-run preferences.
• E) he should not worry about the future anymore because it will take care of itself.

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Definitions:

Disability Insurance

A type of insurance coverage that provides income in the event a worker is unable to perform their job due to a disability.

Fair Bet

A gambling term where the expected winnings are equal to the expected losses, meaning the bet has no advantage for either the house or the gambler.

Expected Utility

A concept in economics and decision theory that represents the average of all possible outcomes under uncertainty, weighted by their respective probabilities and the utility or satisfaction each outcome provides.

Marginal Utility

The additional satisfaction or benefit a consumer gains from consuming one more unit of a good or service.