According to the separation theorem, individuals choose consumption expenditures by choosing the one that maximizes utility while making the present value of income:
A)not larger than the present value of consumption expenditures.
B)independent of the present value of consumption expenditures.
C)not smaller than the present value of consumption expenditures.
D)equal to the present value of consumption expenditures.

Question

Quizplus · Accepted Answer

According to the separation theorem, individuals choose consumption expenditures independently of their present value of income. However, the present value of income must not be smaller than the present value of consumption expenditures to ensure that the individual has the necessary funds to make the chosen consumption expenditures. Therefore, the correct option is C.

According to the Separation Theorem, Individuals Choose Consumption Expenditures by Choosing