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The hypothesis that 'consumption in one period would be a function of income in that period and the returns on savings of the previous period' was given by
- a)Irving Fisher
- b)Franco Modigliani
- c)Duesenberry
- d)Robert Hall
Correct answer is option 'B'. Can you explain this answer?
Verified Answer
The hypothesis that consumption in one period would be a function of i...
The life-cycle hypothesis was developed by Franco Modigliani in 1957. The theory states that individuals seek to smooth consumption over the course of a lifetime – borrowing in times of low-income and saving during periods of high income.
The theory states that consumption will be a function of wealth, expected lifetime earnings and the number of years until retirement.
Consumption will depend on:
where,
C = Consumption
W = Wealth
R = Years until retirement
Y = Income
T = Remaining years of life
The theory states that consumption will be a function of wealth, expected lifetime earnings and the number of years until retirement.
Consumption will depend on:
where,
C = Consumption
W = Wealth
R = Years until retirement
Y = Income
T = Remaining years of life
Most Upvoted Answer
The hypothesis that consumption in one period would be a function of i...
The life-cycle hypothesis was developed by Franco Modigliani in 1957. The theory states that individuals seek to smooth consumption over the course of a lifetime – borrowing in times of low-income and saving during periods of high income.
The theory states that consumption will be a function of wealth, expected lifetime earnings and the number of years until retirement.
Consumption will depend on:
where,
C = Consumption
W = Wealth
R = Years until retirement
Y = Income
T = Remaining years of life
The theory states that consumption will be a function of wealth, expected lifetime earnings and the number of years until retirement.
Consumption will depend on:
where,
C = Consumption
W = Wealth
R = Years until retirement
Y = Income
T = Remaining years of life
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Community Answer
The hypothesis that consumption in one period would be a function of i...
The correct answer to the given question is option 'B', Franco Modigliani.
Franco Modigliani, an Italian economist, developed the life-cycle theory of consumption in the 1950s. According to this theory, individuals plan their consumption and savings decisions over their entire lifetime, rather than just focusing on their current income or wealth.
The life-cycle theory of consumption suggests that consumption in any given period is determined by two main factors:
1. Income in that period: According to the theory, individuals tend to consume a larger proportion of their income when their income is high and a smaller proportion when their income is low. This implies that consumption is positively related to income.
2. Returns on savings of the previous period: Individuals save a portion of their income in order to accumulate wealth and provide for future consumption. The returns on these savings, such as interest, dividends, or capital gains, contribute to their total wealth and can be used to finance consumption in the future. Higher returns on savings in the previous period would therefore lead to higher consumption in the current period.
In summary, the hypothesis that consumption in one period is a function of income in that period and the returns on savings of the previous period was given by Franco Modigliani. His life-cycle theory of consumption emphasizes the importance of considering both current income and past savings in understanding consumption behavior over the lifetime of individuals.
Franco Modigliani, an Italian economist, developed the life-cycle theory of consumption in the 1950s. According to this theory, individuals plan their consumption and savings decisions over their entire lifetime, rather than just focusing on their current income or wealth.
The life-cycle theory of consumption suggests that consumption in any given period is determined by two main factors:
1. Income in that period: According to the theory, individuals tend to consume a larger proportion of their income when their income is high and a smaller proportion when their income is low. This implies that consumption is positively related to income.
2. Returns on savings of the previous period: Individuals save a portion of their income in order to accumulate wealth and provide for future consumption. The returns on these savings, such as interest, dividends, or capital gains, contribute to their total wealth and can be used to finance consumption in the future. Higher returns on savings in the previous period would therefore lead to higher consumption in the current period.
In summary, the hypothesis that consumption in one period is a function of income in that period and the returns on savings of the previous period was given by Franco Modigliani. His life-cycle theory of consumption emphasizes the importance of considering both current income and past savings in understanding consumption behavior over the lifetime of individuals.
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The hypothesis that consumption in one period would be a function of income in that period and the returns on savings of the previous period was given bya)Irving Fisherb)Franco Modiglianic)Duesenberryd)Robert HallCorrect answer is option 'B'. Can you explain this answer?
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