The Notion of Consumption Smoothing Means

question 3

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 do not; if consumption were smoothed, people would be better off.

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