If households expect an increase in their future incomes, they will save
A) less and consume more today.
B) more and consume less today.
C) and consume more today.
D) and consume less today.

Question

Quizplus · Accepted Answer

When households expect an increase in their future incomes, they are likely to save less and consume more today, anticipating that they will have more resources available in the future to replenish their savings. This behavior is based on the permanent income hypothesis, which suggests that people plan their consumption and savings based on their expectations of long-term income rather than just their current income.

If Households Expect an Increase in Their Future Incomes, They