According to the permanent-income theory of consumption, a person whose income fluctuates widely from year to year will have
A)a higher apc in high-income years than in low-income years
B)a lower apc in high-income years than in low-income years
C)a consistently high apc year after year
D)a consistently low apc year after year
E)an apc that is equal to 1

Question

Quizplus · Accepted Answer

According to the permanent-income theory of consumption, individuals base their consumption on their expected long-term income, rather than on their current income. Therefore, a person whose income fluctuates widely from year to year will have a lower apc in high-income years than in low-income years because they will be less likely to increase their consumption in response to a temporary increase in income.

According to the Permanent-Income Theory of Consumption, a Person Whose