According to the permanent income hypothesis,which of the following should raise current consumption the most?
A) a lottery prize of $1,000
B) an unexpected year-end bonus of $1,000
C) a temporary tax cut of $1,000
D) an increase of $1,000 in annual salary
E) an inheritance of $1,000

Question

Quizplus · Accepted Answer

The permanent income hypothesis suggests that individuals base their consumption on their long-term income expectations rather than their current income. An increase of $1,000 in annual salary is seen as a permanent increase in income, which would most significantly raise current consumption compared to one-time or temporary increases in income.

According to the Permanent Income Hypothesis,which of the Following Should