Comparative Consumption Smoothing Analysis
Consider two individuals, Alex and Ben, who both have a three-period lifetime and perfect foresight of their future income. Their lifetime income streams are as follows:
- Alex's Income: Period 1: $30,000; Period 2: $90,000; Period 3: $60,000
- Ben's Income: Period 1: $60,000; Period 2: $60,000; Period 3: $60,000
Based on the idealized model of consumption smoothing, analyze and compare the following for Alex and Ben:
- Their annual level of consumption.
- Their patterns of saving and borrowing throughout their lifetimes.
Justify your reasoning for both points.
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