The permanent income view of consumption spending postulate that households base their spending on:

Question

Quizplus · Accepted Answer

The permanent income view of consumption spending posits that households base their spending on their average long-run income, rather than their current income or future income. This is because households are assumed to be forward-looking and to make consumption decisions based on their long-term earning potential rather than short-term fluctuations in income. Therefore, the correct answer is C – average long-run income.

The Permanent Income View of Consumption Spending Postulate That Households