Suppose that your annual income has averaged $40,000 for the past 10 years and that you expect it will average $40,000 over the next 10 years. If your income this year increases to $50,000 and you increase your consumption expenditures by $10,000, then you are most likely acting according to the
A) transitory income theory of consumption.
B) current income hypothesis.
C) permanent income hypothesis.
D) disposable personal income theory of consumption.

Question

Quizplus · Accepted Answer

The current income hypothesis suggests that individuals base their consumption decisions on their current income rather than their long-term average income or permanent income. Therefore, the increase in consumption expenditures in response to the increase in current income is consistent with this hypothesis.

Suppose That Your Annual Income Has Averaged $40,000 for the Past