If Consumers Want Consumption to Be as Constant as Possible

question 27

Multiple Choice

If consumers want consumption to be as constant as possible over their life cycles and income rises gradually over their periods of employment, then if borrowing constraints prevent their wealth from falling below zero:

• A)they can achieve constant consumption by borrowing.
• B)their consumption in retirement will be higher than it was in earlier parts of the life cycle.
• C)their consumption during their younger years will be lower than it will be in later parts of the life cycle.
• D)their consumption during their later working years will be higher than it was or will be in other parts of

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Definitions:

Adjusting Journal Entry

Entries made in accounting records at the end of an accounting period to allocate revenue and expenses to the period in which they actually occurred.

Expected Life

The estimated duration over which an asset is anticipated to be usable for its intended purpose, often affecting depreciation calculations.

Accrued Salaries

Salaries that have been incurred but not yet paid, representing a liability for the employer.

Salaries Expense

An expense recorded to represent wages or salaries paid to employees.