The Intertemporal Budget Constraint Tells Us That

question 23

Multiple Choice

The intertemporal budget constraint tells us that

• A) the income earned in a lifetime will be evenly divided between consumption and saving.
• B) the present value of lifetime consumption equals the present value of lifetime income.
• C) household consumption is based on permanent income and not transitory income.
• D) consumption smoothing only occurs in years when income is greater than consumption.

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Definitions:

Merchandise

Goods or products that are bought and sold in commerce, typically in a retail environment.

Break-Even Level

The point at which total costs and total revenue are equal, resulting in no net loss or gain.

Monthly Interest Rate

The interest rate quoted or applied on a monthly basis, often used in loans or savings calculations.

Credit Policy

The guidelines a company follows to determine the creditworthiness of its customers and the terms of credit to offer.