Answer to Question #238944 in Macroeconomics for kuku

Question

both life cycle and permanent income hypothesis rely on Fischer's intertemporal choice model estimating present value of income. however both make different assumptions about the present value of income. explain

Answer 1

life cycle hypothesis state that people seek smooth consumption and they borrow when income is low for consumption.

permanent income hypothesis peopl spent according to their expected flow of income in lon term.