According to the permanent-income theory of consumption
A)permanent income is always lower than transitory income
B)the mpc out permanent income is close to zero
C)the mpc out of transitory income is close to 1
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

The permanent-income theory of consumption, proposed by Milton Friedman, suggests that people's consumption patterns are primarily determined by their long-term income expectations rather than by their current income. This theory does not assert that permanent income is always lower than transitory income (A), nor does it claim specific marginal propensities to consume (mpc) out of permanent or transitory income as stated in options B and C.

According to the Permanent-Income Theory of Consumption