The "life cycle" and "permanent income" theories of consumption share which of the following features?
A) Consumption remains stable on a permanent basis.
B) Consumption spending depends on income, rather than wealth.
C) Consumption spending should fluctuate widely from year to year.
D) Consumers look ahead to the future in making current spending decisions.
E) Consumption decisions are based on how well the stock market performs.

Question

Quizplus · Accepted Answer

Both the "life cycle" and "permanent income" theories of consumption suggest that consumers look to the future when making spending decisions. The life cycle theory suggests that consumers will save more in anticipation of future expenses, while the permanent income theory suggests that consumers will maintain a constant level of consumption even if their current income fluctuates. Neither theory suggests that consumption spending should fluctuate widely from year to year or that it is based on how well the stock market performs.

The "Life Cycle" and "Permanent Income" Theories of Consumption Share