The Notion of Consumption Smoothing Means

question 107

Multiple Choice

The notion of consumption smoothing means

• A) people tend to spend about the same amount each month.
• B) people tend to spend about the same amount each year,and if more is spent this year than in the past,they would tend to spend less next year.
• C) consumption varies less than income over a person's lifetime.In early life people tend to borrow,in late life people tend to dissave,but in their middle years they tend to save.
• D) consumption patterns tend to correlate perfectly with income.People spend the exact amount of their incomes over their lifetimes.
• E) consumption tends to vary more than income over a person's lifetime.Although people should smooth their consumption over the years,they don't.If consumption were smoothed,people would be better off.

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Definitions:

Manufacturing Overhead

All manufacturing costs that are not directly associated with the production of goods, such as utilities, rent, and salaries for managers.

Direct Materials

The raw materials that can be physically and directly associated with manufacturing the end product.

Factory Overhead

All indirect costs associated with the production process, such as salaries for supervisors and costs for utilities, not directly attributed to specific units of products.

Mixed Cost

A cost that contains both variable and fixed cost elements, making it partially dependent on the level of output or activity.