The idea that households spend each year based on their expected long-run income rather than their current income is known as the:
A) permanent income theory.
B) level spending effect.
C) New Keynesian contradiction.
D) crowding out effect.

Question

Quizplus · Accepted Answer

The permanent income theory, proposed by Milton Friedman, suggests that households base their consumption decisions on their long-term income expectations rather than their current income, aiming to smooth consumption over time.

The Idea That Households Spend Each Year Based on Their