If consumers want consumption to be as constant as possible over their life cycles and income rises gradually over their periods of employment, then if borrowing constraints prevent their wealth from falling below zero:
A)they can achieve constant consumption by borrowing.
B)their consumption in retirement will be higher than it was in earlier parts of the life cycle.
C)their consumption during their younger years will be lower than it will be in later parts of the life cycle.
D)their consumption during their later working years will be higher than it was or will be in other parts of

Question

Quizplus · Accepted Answer

If borrowing constraints prevent wealth from falling below zero, consumers cannot borrow to smooth consumption, leading to lower consumption in younger years when income is lower.

If Consumers Want Consumption to Be as Constant as Possible