Optimal Consumption Smoothing

An individual receives a one-time payment of $4,000 today and expects to earn no income in the subsequent period. This person has no particular preference for consuming in the present versus consuming in the future and can save money without earning interest. To achieve the most satisfactory outcome, how would this individual allocate their consumption between the two periods?

An individual receives a one-time income of $500 today and expects no income in the next period. If this individual has no preference for consuming now versus later, their optimal choice would be to consume$300 today and save $200 for the next period.

Optimal Consumption Allocation

An individual expects to receive $80 today and$120 in the next period. This person does not have a preference for consuming goods now versus in the future and can borrow or save money without any interest cost. To achieve the most desirable consumption pattern across both periods, what action should this individual take today?

Evaluating a Consumption Strategy

Evaluating a Consumption Plan

An individual who has no preference for consuming now versus in the future receives an income of $120 in the current period and expects an income of$80 in the next period. To achieve a perfectly consistent level of consumption across both periods, this individual must save $____ in the current period.

An individual has an income of $80 in the current period and expects an income of$120 in the next period. This person has no preference for consuming now versus later and can borrow or save at a zero interest rate. They decide to borrow $20 in the current period. What is the primary reason this action leads to their most preferred outcome?

An individual has no preference for consuming now versus in the future and can save or borrow at a zero interest rate. Their goal is to have the exact same level of consumption in Period 1 and Period 2. Match each two-period income scenario with the action in Period 1 that achieves this goal.

An individual receives a one-time bonus of $800 and expects no other income in the present or the future. This person does not have a preference for consuming goods today over consuming them in the future. Assuming there is no interest earned on savings, how would this individual allocate the$800 between present and future consumption to achieve the most balanced level of satisfaction over time?

Analyzing Consumption Decisions

Optimal Consumption Planning

An individual who values present and future consumption equally has a total of $100 to spend over two periods (today and tomorrow). This individual decides on a plan to consume$60 today and $40 tomorrow. This plan represents the best possible allocation of resources to maximize their overall satisfaction.

An individual who has no preference for when they consume goods receives an income of $1,000 in period one and expects to receive an income of$200 in period two. To maximize their overall well-being, this individual should consume more in period one than in period two.

An individual receives a one-time payment of $500 and has no other source of income for the present or the future. To maintain a consistent level of well-being across both time periods, this individual decides to save a portion of the payment for future use. The amount they should save is$____.

Optimal Lifetime Consumption Plan

An individual has a total of $200 to allocate between two time periods. This person has no preference for consuming goods in the present versus the future and seeks to maintain a stable level of well-being across both periods. Which of the following consumption plans would be the LEAST optimal for this individual?

An individual expects to earn $100 in the present period and$300 in the future period. This person does not have a preference for consuming now versus later and aims to maintain a consistent level of well-being across both periods. Assuming they can borrow or save money without any interest, what action should this individual take in the present period to achieve their goal?

Evaluating a Consumption Plan