Consider consumption in two periods,
and
. Consumption smoothing implies people prefer to consume
if
and R = 0.

Question

Consider consumption in two periods,  
and  
. Consumption smoothing implies people prefer to consume  
if  
and R = 0.

Quizplus · Accepted Answer

Consumption smoothing means that individuals prefer a relatively constant level of consumption over time. Therefore, if there is no discounting (R=0), individuals would prefer to consume the same amount in both periods, which implies consuming less in the first period and saving more for the second period.

Consider Consumption in Two Periods