What is consumption smoothing? How does insurance help people smooth consumption?
Answer to relevant QuestionsSuppose that you have a job paying $50,000 per year. With a 5% probability, next year your wage will be reduced to $20,000 for the year. a. What is your expected income next year? b. Suppose that you could insure yourself ...Your professor is paid only nine months out of the year (really!!). Suppose that she were fired each spring and rehired each fall and thereby eligible for unemployment insurance benefits. (After all, all those students going ...Chimnesia has two equally sized groups of people: smokers and nonsmokers. Both types of people have utility U = ln(C), where C is the amount of consumption that people have in any period. So long as they are healthy, ...Senator Dare suggests lowering Social Security benefits by reducing the rate at which Average Indexed Monthly Earnings are converted to the Primary Insurance Amount for future retirees. Senator Snow instead proposes reducing ...Suppose you find evidence that high school dropout workers are more likely to retire at age 62 than are college-educated workers. You conclude that these workers do so because they are more liquidity-constrained than are ...
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