Knowing the desired size of the bequest is important in predicting the path of future consumption,
A) but unfortunately it is inconsistent with the basic assumptions of the permanent income hypothesis.
B) but unfortunately it is inconsistent with the basic assumptions of both the permanent income hypothesis and the life cycle hypothesis.
C) but not knowing its precise size does little to undermine the general implications of any of the forward-looking consumption theories.
D) but theories that explain bequest behavior are totally inconsistent with any forward-looking consumption theory.
E) none of the above.

Question

Quizplus · Accepted Answer

Knowing the desired size of a bequest does not significantly detract from the overall implications of forward-looking consumption theories, which include the permanent income hypothesis and the life cycle hypothesis. These theories can still broadly predict consumption behavior even without precise knowledge of bequest intentions.

Knowing the Desired Size of the Bequest Is Important in Predicting