Suppose a person's preferences are to "consumption smooth",which means they wish to get $C _ { 1 } = C _ { 2 }$ for all incomes and interest rates.For any interest rate and $Y _ { 1 } Y _ { 2 }$ ,the person will ____ in the first period.
A)borrow
B)save
C)neither borrow nor save

Question

Suppose a person's preferences are to "consumption smooth",which means they wish to get $C _ { 1 } = C _ { 2 }$ for all incomes and interest rates.For any interest rate and $Y _ { 1 } > Y _ { 2 }$ ,the person will ____ in the first period.
A)borrow
B)save
C)neither borrow nor save

Quizplus · Accepted Answer

Given the preference for consumption smoothing ($C_1 = C_2$) and an income scenario where $Y_1 > Y_2$, the person will save in the first period. This is because they have more income in the first period than in the second, and in order to equalize consumption across both periods, they will save part of their first period's income to consume in the second period.

Suppose a Person's Preferences Are to "Consumption Smooth",which Means They C1=C2C _ { 1 } = C _ { 2 }C1​=C2​

Suppose a Person's Preferences Are to "Consumption Smooth",which Means They $C _ { 1 } = C _ { 2 }$