In the life cycle model, total amount available for consumption in period 0 is: A)C₀= M₀+ present value of(M₁- C₁). B)C₀= M₀+ M_1. C)C₀= M₀+ future value of (M₁- C₁). D)C₀= M₀+ M₁- C_1.

Question

Quizplus · Accepted Answer

The total amount available for consumption in period 0 is equal to the sum of the initial endowment (M₀) and the present value of the difference between the period 1 endowment and consumption (M₁- C₁).

In the Life Cycle Model, Total Amount Available for Consumption