According to the Life-Cycle Theory of Consumption, What Should Have

question 45

Multiple Choice

According to the life-cycle theory of consumption, what should have occurred after the stock market crash of 1987?

• A)a decrease in current consumption
• B)no change in current consumption since only nominal wealth was lost
• C)no change in aggregate consumption since most people do not invest in the stock market
• D)an increase in consumption since people were afraid to save
• E)both B and C

---

Definitions:

Preferred Stock

A class of stock with preferential rights over common stock, often including fixed dividends and priority in assets upon liquidation.

Noncash Assets

Assets that are not in the form of cash or cannot be easily converted to cash, such as property, plant, and equipment.

Par Value

This term describes the nominal or face value of a bond, stock, or coupon as stated by the issuer, often used in the context of bonds and shares.

Preferred Stock

a class of stock that typically provides dividends before dividends are distributed to common stockholders and may have priority over common stock in the event of liquidation.