Refer to the graph that describes income and consumption patterns over a typical life cycle to...

Refer to the graph that describes income and consumption patterns over a typical life cycle to answer the following questions:

Which part of the accompanying graph depicts dissaving?

Solutions

Expert Solution

The theory states that individuals seek to smooth consumption over the course of a lifetime – borrowing in times of low-income and saving during periods of high income.

The graph shows individuals save from the age of 20 to 65.

As a student, it is rational to borrow to fund education.
Then during your working life, you pay off student loans and begin saving for your retirement.
This saving during working life enables you to maintain similar levels of income during your retirement.

It suggests wealth will build up in working age, but then fall in retirement.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Use the consumption over time model, income and substitution effects, and a graph to carefully analyze...

Use the consumption over time model, income and substitution effects, and a graph to carefully analyze what happens to consumption today, consumption in the future, utility and savings if the interest rate is lowered, and before it was lowered the consumer was a lender (i.e. C1<M1)

Explain the cyclical relationship between aggregate consumption and national income in terms of life cycle hypothesis

Essay- Discuss "permanent income" and "life-cycle consumption" theories. Why is investment the most volatile sector of...

Essay- Discuss "permanent income" and "life-cycle consumption" theories. Why is investment the most volatile sector of aggregate demand? Explain how interest rates, output, and taxes determine the demand for capital. Discuss the effect of monetary policy on investment spending.

Refer to the section on the Product Life Cycle. For each of the four stages of...

Refer to the section on the Product Life Cycle. For each of the four stages of the Product Life Cycle, identify a product in the market that you think may be in that stage right now. Explain your reasoning for each product/stage

Describe Modigliani’s life-cycle hypothesis. How do consumers maintain a constant level of consumption over time? How...

Describe Modigliani’s life-cycle hypothesis. How do consumers maintain a constant level of consumption over time? How does this hypothesis resolve the seemingly contradictory pieces of evidence regarding consumption behavior found by Kuznets?

How do the life-cycle and permanent-income hypotheses resolve the seemingly contradictory pieces of evidence regarding consumption...

How do the life-cycle and permanent-income hypotheses resolve the seemingly contradictory pieces of evidence regarding consumption behavior?

In a typical business cycle, is consumption or investment more volatile? Explain why. "Each answer must...

In a typical business cycle, is consumption or investment more volatile? Explain why. "Each answer must be about 1 - 2 paragraphs and use economic models/term to explain your answer."

Define the following and provide a graph illustrating the consequences e.g. under-production/consumption or over-production/consumption or deadweight...

Define the following and provide a graph illustrating the consequences e.g. under-production/consumption or over-production/consumption or deadweight loss of each in a perfectly competitive market. Explain the different approaches governments can use to bring about the socially efficient outcome. (a) Negative Production Externality (b) Negative Consumption Externality (c) Positive Production Externality (d) Positive Consumption Externality

a. Use the information to sketch the income consumption curve on a graph. b. Draw the...

a. Use the information to sketch the income consumption curve on a graph. b. Draw the Engel curves for hot dogs and hamburgers. Income HotDogs Hamburgers $10 3 7 15 6 9 20 10 10 c. What is the income elasticity of hot dogs for this consumer as income increases from $10 to $15? (calculate using percentage changes of income and quantity demanded).

Consider the case of a borrower within the life-cycle model of consumption and saving. Explain and...

Consider the case of a borrower within the life-cycle model of consumption and saving. Explain and illustrate how borrowing changes in response to a proportional tax on interest under the following situations. a) Interest earnings are taxed, and interest payments are deductible b) Interest earnings are taxed, and interest payments are non-deductible

Subjects