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?

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 2 years ago

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