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Microeconomics

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Moderate

Two-Period Savings Model: Real Smooth

MICRO-LUQR$M

Consumption smoothing is the practice of spending more than the amount of money you are getting at times when you are earning very little, and spending less than the amount of money you're getting at times when you are earning a lot, instead either saving that extra money for a later date when you will be earning less, or using the extra money to pay off debts you accrued in earlier periods you were earning less.

In each of the below examples, $Y_1$ and $Y_2$ are the amount of money the consumer is endowed with in periods 1 and 2 , respectively, and $C_1$ and $C_2$ are the amount the consumer spends on consumption periods 1 and 2, respectively.

In which of the below examples is the consumer consumption smoothing? Select ALL that apply.

A

$Y_1 = 100, Y_2 = 100, C_1 = 95, C_2 = 107$

B

$Y_1 = 100, Y_2 = 200, C_1 = 110, C_2 = 110$

C

$Y_1 = 500, Y_2 = 450, C_1 = 460, C_2 = 490$

D

$Y_1 = 400, Y_2 = 600, C_1 = 390, C_2 = 650$