How is a household’s precautionary savings likely to be affected by the following events? (Hint: precautionary...

How is a household’s precautionary savings likely to be affected by the following events?

(Hint: precautionary savings reflects how much a household SHOULD save because of uncertainty, not how much they can save.)

1) The main wage earner in the house switches from a career in management at a large corporation to starting a small consulting business.

2) The household is given $5 million from a wealthy relative’s estate.

c) A couple’s last child graduates from college

Expert Solution

a)

The main wage earner in the house switches from a career in management at a large corporation

If someone starts a small consulting business. The main wage gainer at a large corporation can save certain portion his or her salary this is because in the large corporation it is sure that he will get the salary at the end of the month. But the main wage earner will not be sure that how much he can save for his desired new venture.

It is very difficult to predict the ups and down in the small consulting firm in the beginning.

The household is given 5 million from a wealthy relative’s estate.

The household tries to use these $5million by investing it in legitimate way as it is surprising and he doesn't know when that sum will be demanded back.

A couple’s last child graduates from college.

For precautionary events the couple will save for their kinds as there may be some unexpected expenditures in the study of their kids.

keosha answered 1 year ago

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