Q.

There are strong theoretical reasons to expect that changes in wealth are responsible for changes in consumption. Nonetheless, one reason that we observe a tight link between consumption and disposable income is...

A. credit rationing which changes the intertemporal budget constraint for borrowers.
B. households attempt to smooth their consumption.
C. household saving provides a buffer between income and expenditure.
D. ricardian equivalence.
Answer» A. credit rationing which changes the intertemporal budget constraint for borrowers.
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