John has $100,000 in annual income but does not own a house or a car. Bob has $100,000 in annual income and owns two houses and four cars. Which theorist would predict that John spends a different proportion of his current income than Bob?
A) Milton Friedman
B) John Maynard Keynes
C) Irving Fisher
D) David Ricardo

Question

Quizplus · Accepted Answer

Milton Friedman's Permanent Income Hypothesis suggests that people spend money based on their expected long-term average income rather than their current income. Since Bob has more assets, he might perceive a higher permanent income, leading to different spending behavior compared to John.

John Has $100,000 in Annual Income but Does Not Own