According to the permanent income hypothesis,
A) consumption in any period depends on the stable annual income that people expect to earn in their jobs.
B) the amount of income that people require depends on the amount of consumption they need and want to undertake.
C) consumption in any period depends on the average annual income people expect to receive for the rest of their lives.
D) the amount of personal saving depends on the amount of consumption people plan to undertake when they retire.

Question

Quizplus · Accepted Answer

The permanent income hypothesis suggests that consumption in any given period is determined by the average annual income that people expect to receive over their entire lifetime. This means that people will adjust their consumption based on their overall expected income, rather than just their income in any one particular period. This theory was developed as a way to explain why changes in income (such as a temporary increase in salary) do not necessarily lead to corresponding changes in spending habits.

According to the Permanent Income Hypothesis