The left-hand side of the Euler equation,
,represents the:
A)growth rate of income.
B)total lifetime consumption,in dollars.
C)the lifetime utility function.
D)discount factor.
E)growth rate of consumption.

Question

The left-hand side of the Euler equation, 
,represents the:
A)growth rate of income. 
B)total lifetime consumption,in dollars. 
C)the lifetime utility function. 
D)discount factor. 
E)growth rate of consumption.

Quizplus · Accepted Answer

The left-hand side of the Euler equation represents the growth rate of consumption, which is the change in consumption in the current period relative to the change in consumption in the next period. This is captured by the first derivative of the lifetime utility function with respect to consumption. Therefore, the correct choice is E - growth rate of consumption.

The Left-Hand Side of the Euler Equation