Isaac is 25, Sonia is 45, and Jenny is 75 . Would you suppose that each would have the same marginal propensity to consume? Whose ideas on consumption relate to age?
According to Franco Modigliani's life-cycle hypothesis, Issac and Jenny would probably have higher MPCs
than Sonia's. Issac's would be relatively high because he is just starting out and is busy buying a house, a
car, and other items that eat into his relatively modest income. Sonia's would be relatively low because her
income is at its life time peak but her spending grows only modestly, compared with when she was
younger. Jenny's would be relatively high because older people's spending patterns don't fall (it's habitual
now) as much as their incomes do when they enter retirement.
You might also like to view...
If we want to gauge how much the income tax system distorts incentives, we should use the
a. average tax rate. b. ability-to-pay principle. c. total tax revenue collected. d. marginal tax rate.
Evaluate the following statement: "The gender pay gap provides evidence of widespread, severe, ongoing discrimination by employers and fellow workers."