The Separation Theorem:
A)implies that consumers maximize utility over time subject to a wealth constraint.
B)means that individuals choose occupations independent of their consumption streams.
C)requires that the present value of consumption expenditure exceeds the present value of income.
D)means that firms maximize profits as a function of the preferences of consumers.

Question

Quizplus · Accepted Answer

The Separation Theorem states that an individual's decision-making process can be separated into two parts: the choice of how much to save and the choice of how to allocate those savings between consumption and investment. It implies that consumers try to maximize their utility over time subject to a given wealth constraint, rather than making their consumption and investment decisions simultaneously.