A permanent increase in income leads to
A) a large increase in current consumption.
B) a small increase in current consumption.
C) a small decrease in future consumption.
D) a small increase in future consumption.
E) a large decrease in future consumption.

Question

Quizplus · Accepted Answer

A permanent increase in income leads to a large increase in current consumption because individuals adjust their consumption patterns based on their lifetime income expectations, spreading the increase over time.

A Permanent Increase in Income Leads to