Multiple Choice
Consider 2 identical twins, Scott and Rich.Scott is a professional wrestler who will earn lots of income when he is young and will retire by age 40.Rich is a manager who expects to earn high income in his 50s and 60s.The life cycle theory of savings would predict that Scott should save while he is young to smooth consumption over his lifetime, and Rich should borrow against his future earnings when he is young.If Scott and Rich are typical savers, which of the following scenarios is most likely to be observed?
A) Scott will save a substantial portion of his wrestling income but Rich will not borrow against future earnings to boost consumption when he is young.
B) Scott will save a substantial portion of his wrestling income and Rich will borrow against future earnings to boost consumption when he is young.
C) Scott will spend his wrestling income when he is young and Rich will not borrow against future earnings to boost consumption when he is young.
D) Scott will spend his wrestling income when he is young and Rich will borrow against future earnings to boost consumption when he is young.
E) There are no typical patterns of saving.
Correct Answer:
Verified
Correct Answer:
Verified
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