The assertion that consumption depends on expected average annual income is called
A) permanent income.
B) the current income hypothesis.
C) current income.
D) the permanent income hypothesis.

Question

Quizplus · Accepted Answer

The assertion that consumption depends on expected average annual income is known as the permanent income hypothesis. This hypothesis suggests that people base their consumption decisions on their expected long-term or permanent income rather than their current income. The current income hypothesis (Choice B) suggests that consumption depends on current income rather than long-term income expectations. Choice A (permanent income) and C (current income) are partially correct terms but do not fully describe the connection between income and consumption described by the permanent income hypothesis.

The Assertion That Consumption Depends on Expected Average Annual Income