If people can borrow and lend to perfectly smooth out their lifetime living standards, then ?
Correct answer: C. permanent income is a good measure of the distribution of living standards.
- A. transitory income is a good measure of the distribution of living standards
- B. none of these answers
- C. permanent income is a good measure of the distribution of living standards.
- D. life-cycle income is a good measure of the distribution of living standards.
- E. current annual income is a good measure of the distribution of living standards.
Explanation
With perfect borrowing and lending, people can convert income received at different ages into a smooth lifetime consumption path. Permanent income therefore better represents their long-run living standard than current or transitory income.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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