A Consumer Spending Excessively Today, Intending to Start Saving for Retirement

question 106

Multiple Choice

A consumer spending excessively today, intending to start saving for retirement tomorrow, but deciding to continue spending when tomorrow arrives is an example of:

• A) an income effect offsetting a substitution effect.
• B) time-inconsistent preferences.
• C) spending out of permanent income, but not out of transitory income.
• D) an intertemporal budget constraint.

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Definitions:

Net Working Capital

The difference between a company's current assets and current liabilities.

Short-Term Payables

Liabilities owed by a company that are due within one year, often including accounts payable, wages, and taxes.

Gross Working Capital

The total amount of a company's current assets, which are assets likely to be converted into cash within one year.

Net Working Capital

The difference between a company's current assets and current liabilities, indicating the short-term financial health and operational efficiency of the business.