Which of the following is an example of the life-cycle motive for saving? A. Pat puts $400 per month in his 401 (k) retirement account. B. Jordan sets aside $200 per month in case she has to pay for a new roof for her house. C. Gerry and Terry put $2,000,000 in a trust fund that will go to their children when they die. D. Chris keeps $15,000 in a money market account to pay expenses in case he loses his job.

Question

Adison Gentry

Business

1 October, 07:29

Which of the following is an example of the life-cycle motive for saving? A. Pat puts $400 per month in his 401 (k) retirement account. B. Jordan sets aside $200 per month in case she has to pay for a new roof for her house. C. Gerry and Terry put $2,000,000 in a trust fund that will go to their children when they die. D. Chris keeps $15,000 in a money market account to pay expenses in case he loses his job.

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Answers (1)

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Chanel Gill · Answer 1

Answer: Option (A) is correct.

Explanation:

According to the life-cycle hypothesis, a person plan their consumption and savings over a period of life. Individuals wants to utilize their life time income in a best possible manner, so that their consumption level remains the same over the full period of their life including after retirement period.

In our case, Pat is saving some amount of his income for their after retirement period which shows that this is a example of life-cycle motive for saving.