Consumption Smoothing Is the Idea That

question 2

Multiple Choice

Consumption smoothing is the idea that:

• A) you can save your income as a child to fund your retirement
• B) people prefer to have a constant salary over their lifetime
• C) the government intervenes to insure that salaries don't change, but remain smooth to enable easier decision making
• D) you can borrow when your income is low and pay back when your income rises

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Definitions:

Dominant Strategy

A dominant strategy is a course of action in a strategic game or situation that results in the best outcome for a player, regardless of what the other players decide to do.

Oligopoly

A market structure characterized by a few large firms that dominate the market, often leading to limited competition and higher prices for consumers.

Monopolistically Competitive

A market structure where many firms sell products that are similar but not identical, allowing for a degree of market power and product differentiation.

Nash Equilibrium

A concept in game theory where no participant can gain by unilaterally changing strategies if the strategies of the others remain unchanged.