If you prefer to smooth consumption, which of the following would you prefer?
A) $100 of consumption today and $50 of consumption tomorrow
B) $75 of consumption today and $75 of consumption tomorrow
C) $50 of consumption today and $100 of consumption tomorrow
D) You would be indifferent between all of these.

Question

Quizplus · Accepted Answer

Option B provides an equal amount of consumption on both days, which would be the most effective smoothing of consumption. Options A and C have a significant disparity between the amounts of consumption on each day, which would not be ideal for those seeking to smooth consumption. Option D is not a viable answer, as one option must provide better smoothing than the others.

If You Prefer to Smooth Consumption, Which of the Following