Answer to Question #210072 in Macroeconomics for Bristi banyaa Das

Question

State and explain critically the life cycle hypothesis?

Answer 1

The life-cycle hypothesis (LCH) is an economic theory that describes people's spending and saving patterns across their lifespan. According to the idea, people try to balance their consumption across their lifespan by borrowing when their income is low and saving when their income is high.

The LCH framework articulates the link between consumption, income, wealth, and savings throughout the course of an individual's life. Its key idea is that households have finite life and long-term income and spending requirements.