Which of the following will most likely have the greatest effect on an individual's consumption function?
A)Winning a small amount in the lottery
B)A one-time tuition grant
C)A week of high overtime pay
D)An inheritance paying a modest annual dividend

Question

Quizplus · Accepted Answer

An inheritance paying a modest annual dividend represents a permanent or at least long-term increase in income, which is more likely to affect an individual's consumption function significantly compared to one-time or short-term increases in income. Permanent income hypothesis suggests that individuals base their consumption on expected long-term income rather than temporary changes.

Which of the Following Will Most Likely Have the Greatest