If individuals are able to borrow and lend freely to perfectly stabilize their consumption over their lifetime, which measure best reflects the distribution of living standards?

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Temporary income accurately represents how living standards are spread.None of the provided choices are correct.Permanent income effectively captures the distribution of living standards.Lifetime income is the best indicator of living standards distribution.Income earned annually at present is a reliable measure of living standards.

Explanation

When people can borrow and lend without restrictions to smooth consumption over time, their permanent income—reflecting long-term average resources—provides the most accurate measure of living standards distribution. In contrast, temporary or current income can fluctuate and may not represent true economic well-being.