According to the permanent-income theory
A)increases in current income lead to proportionate increases in consumption and saving
B)a rise in income affects consumption only after a delay of several years
C)a person's consumption in any given year will be strongly affected by interest rate changes
D)a person's consumption in any year will always be closely tied to his/her highest previous level of consumption
E)none of the above

Question

Quizplus · Accepted Answer

The permanent-income theory suggests that people base their consumption on their expected long-term average income, rather than their current income. This means that temporary changes in income do not lead to proportionate changes in consumption, and consumption changes may not be immediate or directly tied to current income fluctuations or interest rate changes.

According to the Permanent-Income Theory