Using the Life-Cycle Theory of Consumption, Explain Each of the Following

question 70

Essay

Using the life-cycle theory of consumption, explain each of the following:
(a) Mary and Tom both earn $15,000. Mary spends $30,000 a year and Tom spends $14,000 a year. Mary is working on her MBA degree and Tom, a high school dropout, works as a window washer.
(b) Paul's current income has not changed, but he becomes pessimistic about the economy and worries about losing his job. As a result, he reduces his current consumption.

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Definitions:

Withdrawal Method

A form of birth control where the penis is withdrawn from the vagina before ejaculation to prevent sperm from entering the female reproductive tract.

Birth Control

Various methods or devices used to prevent pregnancy, ranging from hormonal pills to barrier methods and surgical procedures.

Birth Canal

The passageway consisting of the cervix and vagina through which a fetus is delivered during childbirth.

Cervix

Narrow part of uterus that connects to the vagina.