Consumption Smoothing Is an Implication of the Neoclassical Model of Consumption

question 95

True/False

Consumption smoothing is an implication of the neoclassical model of consumption. This is because a rise in income either today or in the future reduces present value consumption, smoothing consumption.

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Definitions:

Maximum Cost

The highest possible expense that can be incurred for a specific activity, project, or purchase.

Method

A systematic way of accomplishing something. In a financial context, this could refer to a specific approach or procedure adopted for accounting or analysis purposes.

Average Rate of Return Method

A method of evaluating capital investments by calculating the average annual profit expected from the investment and dividing it by the initial investment cost.

Present Value

The contemporary valuation of a future money sum or cash flow series, based on a predetermined return rate.