Final answer:
Joe should choose a Whole Life policy with flexibility in premium payments, such as Universal Life or Variable Life, due to his fluctuating income, ensuring he can smooth his consumption over time.
Step-by-step explanation:
Given Joe's fluctuating income as a real estate salesman, the most suitable Whole Life policy is one that provides flexibility in premium payments to accommodate his variable earnings. In the realm of life insurance, Universal Life or Variable Life policies offer such adaptability, allowing policyholders to adjust their premium payments and benefit levels. These policies typically come with a cash value component that can accumulate over time and can also be used to cover premiums if necessary. The key here is selecting a policy that does not require a rigid premium schedule, offering Joe the ability to pay more during his more lucrative years and less during leaner times. This approach aligns with the concept of smoothing consumption over time and adjusting to increases in income, as indicated by an increase in consumption matching the income increase, resulting in a marginal propensity to consume of 1.0.