Question

In the life cycle theory of consumption, the motive to save is:A.To be able to open a business.B.To become wealthy.C.To leave a large endowment for one's children.D.To build a family dynasty.E.To afford to retire.

Answer 1

Answer: To afford to retire

                       

Explanation: The life cycle theory was established by Modigliani in 1957. This theory states that a rational individual manages its expenses with the motive of saving sufficient amount till his or her retirement.

As per this theory, the individual consumes almost same amount of income which leads to the situation of borrowing in times of low income and savings in times of high income.

However the minor differences leads to savings high than borrowings in times of low income the individual significant lowers his or her capital expenditure.