What do economics models say about the optimal way to save money? You should save as much as possible when you are young and less in your prime working years. You should try to have a similar savings rate from year to year. You shouldn't ever save money. You might want to save zero or even negative when you're young.
Added by Eugene U.
Close
Step 1
The options present different saving strategies. Show more…
Show all steps
Your feedback will help us improve your experience
Penny Riley and 101 other Microeconomics educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Key Concepts
Recommended Videos
When considering the economic life cycle, individuals are typically expected to save the MOST: As they get closer to retirement. In their peak earnings years. The older they get. In their young adulthood.
Penny R.
According to the model of intertemporal choice, what are the major factors which determine how much saving an individual will do? What factors might a behavioral economist use to explain savings decisions?
An individual has $100,000 in income today, but no income in the future, and we are considering the trade-off between consumption now and consumption in the future. Assume that consumption now and in the future can be considered "normal goods." Let savings be defined as any income not consumed today. a. Draw the budget constraints with a rate of return on savings (interest rate) of 10% and 20%. b. Suppose that indifference curves are perfect complements (L-shaped...with the "kink" occurring whenever consumption today is equal to consumption in the future.) Can you tell whether the household will save more or less as a result of the rate increase? How? c. You are asked to advise Congress on a policy of subsidizing savings in order to increase the amount people save. Specifically, Congress proposes a 5% interest payment in addition to the regular market rate. Evaluate the following statement. "Assuming consumption is a normal good, small substitution effects make it likely that savings will actually decline as a result of this policy, but large substitution effects make it likely that savings will increase." d. True/False and why: If you only care about whether future consumption increases with this policy, then all you need to know is that consumption is a normal good.
Akash M.
Recommended Textbooks
Principles of Economics
Principles of Microeconomics for AP® Courses
Economics
Transcript
18,000,000+
Students on Numerade
Trusted by students at 8,000+ universities
Watch the video solution with this free unlock.
EMAIL
PASSWORD